Is This end of Huawei’s Sub-brand honor?

On November 10, Beijing time, Reuters Hong Kong announced an exclusive news that Huawei will sell its Honor mobile phone business to mobile phone distributors Digital China and Shenzhen government-owned companies for about 15.2 billion US dollars .

According to people familiar with the matter, Digital China will become one of the top two shareholders of Honor Terminal Co., Ltd., with a shareholding ratio of nearly 15%. Digital China will also cooperate with Huawei in cloud computing and other fields. In addition, at least three financial and technology companies held by the Shenzhen Municipal Government have joined the acquisition plan, each holding 10%-15% of the shares.

After the sale, Honor will retain most of the management team and nearly 7,000 employees, and will be listed within three years.

Regarding this rumor, Honor and Huawei declined to comment.

Subsequently, domestic media followed up on the news. According to China Business News, the sale of Honor has been finalized and will be spun off from Huawei in the near future. The camp consisting of Shenzhen Star Alliance Information Technology Partnership and channel companies is expected to become the acquirer. In terms of personnel adjustments, according to 36 krypton reports, Huawei’s consumer business COO Wan Biao may join Honor.

An industry insider who did not want to be named revealed to Geek Park that he first heard about the sale of Honor at the end of September. In fact, as early as October, Huawei’s plan to sell Honor was basically finalized. It’s just that the timing of the announcement of the node is not appropriate because the US government is in a period of uncertainty. Now that Biden has won, Huawei has found the best time to sell Honor to the public and minimize the possibility of Honor being listed on the physical list. Huawei is likely to officially announce the news on November 20.

The 817 incident became a “watershed”

On May 15, 2019, Huawei and its more than 70 subsidiaries were included in the “Entity List”. That time, affected mainly Huawei and Google, ARM, the operation collaboration system, chip architecture to an authorization does not really touch Huawei’s terminal business from the foundation.

One year later, in May 2020, Huawei’s control was upgraded again. This time it aimed at restrictions on Huawei’s foundry supply chain and hit Huawei’s “fate”. In other words, even if Huawei has top-notch chip design capabilities, it will not be possible to turn chips from design drawings into physical products if they leave the foundry.

On August 17, 2020, the United States again updated its Export Administration Regulations (EAR) rules. The United States prevented Huawei from obtaining chips through alternative chip production and providing tools to produce chips from the United States. This means that third-party chip manufacturers including Qualcomm and MediaTek will not be able to supply Huawei, cannot produce their own chips nor can they buy ready-made chips from third-party channels, and Huawei’s mobile phone business has become “no rice.”

The aforementioned industry insiders stated that “The 817 incident has become a watershed in the drastic changes in Huawei’s terminal phones.”

Huawei’s components are out of stock, and each additional mobile phone produced reduces a certain amount of raw materials. This time, Huawei as He Ping Heng and Honor components distribution become a problem.

In 2011, Huawei opened up a new line of Honor products to counter the Internet mobile phone brand Xiaomi. Two years later, in order to make the division of labor more clear, without affecting the high-end tonality of the main brand, Honor operates independently. Huawei mainly hits the high-end mobile phone market where Samsung and Apple are located, and Honor focuses on Internet online channels, covering the low-end mobile phone market.

With dual-brand operation, the effect of the two joint forces on the market is obvious. With the help of Huawei’s advantages and support in technology research and development, marketing channels, supply chain, and brand endorsement, Honor quickly became a “new force” in the Internet mobile phone market. On the one hand, Honor has reduced dimensionality to combat Xiaomi in a nearly “cloned” manner; on the other hand, Honor has helped Huawei gain more market share in mobile phone sales.

However, this kind of advantage in fighting and coordinating warfare began to gradually collapse under the influence of the “entity list.”

“After the second round of sanctions in May this year, Honor began to be marginalized within Huawei. After the 817 incident, Honor accelerated its marginalization. At a certain point in time, Huawei definitely has no way to produce mobile phones. In order to maintain the brand’s lifeline, Huawei can only Large abandon the small”, give up the Honor business.” The aforementioned industry insider said.

Favorable development of both parties, the market may usher in great changes

There is no doubt that Huawei’s sale of Honor is a “bet.”

But under the current situation, selling Honor may be Huawei’s “best solution.” According to a Reuters report, people familiar with the matter revealed that even after the US government changes to Biden, the US’s concerns and perceptions of Huawei’s security risks cannot be quickly reversed in a short period of time.

“Huawei’s sale of Honor is a last-ditch battle, and it will do no harm to both Huawei and Honor. After the sale of Honor, the first possibility is that Honor is not included in the physical list. Google GMS can be used, and Huawei will gain opportunity; the second possibility Honor is still limited by the physical list, but for Huawei, at least part of the funds will be recovered. At the same time, a considerable part of the employees will be split with Honor, which will help Huawei reduce operating costs in difficult and special times.” Say.

In fact, through the “dual-brand” strategic operation, Honor itself and even helped Huawei achieve great success in its terminal business.

According to Canalys data, Honor accounted for 26% of Huawei’s overall mobile phone shipments in the third quarter of this year. Honor has a rich product line, including not only mobile phones, but also IoT wearable devices such as PCs, tablets, and smart TVs.

During the high-light period, Canalys analyst Jia Mo recalled to Geekpark (ID: geekpark) that in the first quarter of 2019, Huawei was not affected by the physical list at that time. Honor accounted for nearly half of Huawei’s overall domestic shipments, which was higher than Xiaomi’s entire shipments. Shipments: Brands are ranked separately, and Honor can rank fourth in the domestic market, which has a higher share than Xiaomi.

In terms of the global market, Huawei grew rapidly in 2018 and 2019, and the growth engine was mainly from Honor. For example, Honor ranks first in the Russian market at its best, with a higher share than Samsung. In the Russian market alone, Honor occupies approximately 75% of Huawei’s shipments.

“Observing the hardware design language of Honor, we can find that it is very different from Huawei. Honor has its own skills in hardware design and its own R&D capabilities in software,” said Canalys analyst Jia Mo.

Jia Mo believes that the sale of Honor is a “win-win” for both Huawei Honor. On the one hand, Huawei’s energy is increasingly turning to software. Honor can help Huawei build a software ecosystem and support Huawei’s future transformation by acting as a third-party company. Both online and offline channels have a far-reaching layout. They have been operating independently before. After Honor is sold, whether in the domestic or international markets, it may usher in more opportunities in the entry-level to high-end markets.

At the same time, regardless of whether the Honor business is finally sold, the domestic and even the global mobile phone market is on the eve of great changes.

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