Huawei Sells Honor Brand Amid Tightening Trade Restrictions
(Credit: Kevin Frayer/Getty Images)Huawei has been battered by US trade restrictions in the last few years, and it’s taking a toll on the company’s long-term stability. Experts don’t expect a radical change when the new US administration comes to power next year, so Huawei is beginning to take drastic action. It has sold its Honor sub-brand to a new entity backed by the local Chinese government, and Huawei will have zero ownership stake in the company going forward. That should allow Honor to become just another smartphone manufacturer that doesn’t have to deal with the intricacies of international relations.
Huawei founded Honor in 2013, and by 2015 it was operating in more than 70 countries. Huawei saw Honor has a blank slate that could help it expand into countries where consumers were less familiar with Huawei. The company focused mostly on budget devices, but it took a rather expansive view of that directive. Many of Honor’s phones were modified versions of Huawei devices with a few features stripped out and a lower price tag.
When the US Commerce Department took aim at Huawei, the Chinese megacorporation suddenly found its expansion plans stymied. Honor hasn’t suffered the same negative brand consequences, but US companies still can’t forge deals with it. That means it’s affected by the chip shortages and lack of Google support for Android. Just last week, rumors began to circulate that Huawei was going to throw in the towel and sell Honor, and that’s just what happened.
According to an AP report, Huawei unloaded the Honor brand to a new holding company called Shenzhen Zhixin New Information Technology Co. This is a firm owned at least in part by the government of Shenzhen. Huawei, meanwhile, will not own any shares in the new company. Even with government backing, Honor is less likely to provoke security concerns because it will be smaller and won’t be involved with 5G infrastructure. The details of the sale are not public, but rumors point to something in the neighborhood of $15 billion. Huawei says Honor is selling 70 million smartphones per year, but analysts say Honor has seen a 27 percent drop in sales internationally as Huawei’s position has worsened.
A government-owned Honor will probably make some buyers uneasy, but this sale frees Honor of all those pesky trade restrictions. It will be able to buy materials from US companies and even partner with Google to pre-load apps like Gmail and Maps on phones outside of China. Huawei has said it’s running out of its custom Kirin mobile chips after TSMC was forced to sever ties, but Honor will be allowed to purchase chips from other companies. This could give it a chance to become a profitable smartphone maker without all that Huawei baggage.