China Mobile takes pre-IPO stake in handset firm Honor

Telco giant China Mobile has bought a stake in handset company Honor ahead of its planned IPO.

Neither company has disclosed the size or value of the stake.

Huawei sold Honor four years ago to Shenzhen Zhixin New Information Technology Co., a consortium backed by the Shenzhen city government. 

The investment into the device company by China Mobile Communications Corp, the parent of the listed company China Mobile Ltd, is more likely to be a show of support from the Chinese state than a strategic investment.

A Reuters report earlier this month noted that the privately held firm was receiving an "unusually" high level of government support ahead of its IPO.

Shenzhen government documents showed that Honor was receiving R&D funding, tax breaks and support for overseas expansion, Reuters said.

It's understandable that Shenzhen city might tip in support to aid a successful exit, but it's not clear why a national SOE like China Mobile is lending a hand, especially when China already has a strong bench of mobile phone brands.

Number three in China

China Mobile itself is a major handset player, shipping more than 45 million units in the first half of 2024. But it already has strong relationships with handset makers and it is hard to see it derives any additional benefit from investing directly in one of them.

Huawei created Honor as its mid-range and low-end handset unit in 2013 but sold it in November 2020 after US government sanctions blocked its access to advanced handset chips. Honor was believed to be worth around 100 billion Chinese yuan (USS$14 billion) at the time.

The new company was established in April 2020 with registered capital of 32.2 billion yuan ($4.5 billion).

Honor said earlier this month it will restructure its shareholding in the fourth quarter, with an IPO in Shanghai or Shenzhen to follow late this year or early next.

Honor was China's third-largest handset brand in Q2, shipping 10.7 million units as the national market grew 10% over last year.

The company aims to sell 100 million phones annually by 2026 and to become a top three global vendor by 2028, Reuters reported.