Huawei is reportedly offloading Honor, its budget-brand smartphone business, for a hefty 100 billion yuan (US$15.1 billion).
The buyer, according to Reuters, is a consortium led by Digital China Group and tech investment firms backed by the government of Shenzhen, where Huawei is headquartered.
If the report is correct, the price far exceeds the reported 15-25 billion Chinese yuan ($2.3-3.8 billion) offer for parts of the Honor business made last month by Digital China Group, which is the main distributor of Honor smartphones. (See Huawei to sell its budget Honor unit, focus on flagships – report.)
The all-cash deal, according to unnamed sources, captures "almost all" of Honor assets, including brand, R&D capabilities and supply chain management.
Assuming the deal goes ahead, Digital China Group will apparently become "top-two shareholder" in the sold-off entity – Honor Terminal Co Ltd – with a near-15% stake. Honor Terminal was incorporated in April and is fully owned by Huawei.
Other shareholders will be "at least three" investment firms backed by the Shenzhen government, according to people familiar with the matter, with each owning 10% to 15%.
Digital China Group reportedly plans to finance the purchase with bank loans. The company is listed on the Hong Kong stock exchange, after a 2001 spinoff from the Legend (later Lenovo) Group.
The narrative behind the sale is that US-led squeezes on Huawei's supply chain forced the supplier to ditch the low-end smartphone business, where margins were already wafer-thin, and focus on high-end handsets and "corporate-oriented business." Happily for the buyers, a divested Honor is no longer subject to the US sanctions placed on Huawei.
Not everyone is convinced that Huawei has made the right call. "It seems to be a drastic move given the Honor brand has been highly complementary to Huawei's smartphone portfolio," said Nicole Peng, vice president of mobility at market research firm Canalys, as cited by Reuters.
The buyers already have an exit strategy, according to sources. The plan is apparently to go public within three years, while retaining most of the management team and the 7,000-plus workforce in the meantime.
— Ken Wieland, contributing editor, special to Light Reading