Huawei may part with Honor brand

Huawei Technologies is in talks with Digital China and other buyers including TCL and Xiaomi (1810) to sell parts of its Honor smartphone unit in a deal that could fetch up to 25 billion yuan (HK$28.78 billion), Reuters reports citing sources.

The embattled handset maker is resetting its priorities due to US sanctions and will focus on its higher-end Huawei phones rather than the Honor brand, which is aimed at young people and the budget-conscious, the people said.

Huawei may sell Honor's brand, research and development capabilities, and related supply chain management business, but the assets to be sold have yet to be finalized, two of the people said.

The deal may be conducted all in cash and could end up smaller, worth between 15 billion yuan and 25 billion yuan, one of the people said.

Shares of Shenzhen-listed Digital China, the main distributor for Honor phones, hit its upper trading limit in the mainland market yesterday.

The company has earned an edge over other prospective buyers, and plans to finance the bulk of deal with bank loans and is set to secure the financing in the coming weeks, the people said.

Huawei has denied they are selling the business segment, mainland media reported citing sources from the company. Also, electronics maker TCL had earlier denied mainland reports saying it was buying the Honor brand.

The Honor brand was established by Huawei in 2013 but the business mostly operates independently. The brand sells its phones online through its own sites and via third-party retailers, competes with Xiaomi, Oppo and Vivo in the market for lower-end phones in China. Its phones are also sold in Southeast Asia and Europe. Honor smartphones accounted for 14.6 million, or 26 percent of the 55.8 million smartphones Huawei shipped in the second quarter of this year, according to estimates from research firm Canalys.

But margins for lower-end phones can be razor thin, and Honor booked less than 5 billion yuan in net profit on revenue of about 70-80 billion yuan last year.