Huawei in talks to sell parts of its Honor smartphone business -sources

TCL Electronics Holdings

14/10/2020 06:42

(Adds analyst comment and financial data on Honor unit)
    By Julie Zhu
    HONG KONG, Oct 14 (Reuters) - Huawei Technologies Co Ltd is
in talks with Digital China Group Co Ltd  000034.SZ  and other
suitors to sell parts of its Honor smartphone unit in a deal
that could fetch up to 25 billion yuan ($3.7 billion), people
with knowledge of the matter said.
    Embattled Huawei is resetting its priorities in the face of
U.S. 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, they said.
    The assets to be sold have yet to be finalised but could
include Honor's brand, research & development capabilities and
related supply chain management business, two of the people
said.
    The deal may be an all-cash sale and could end up smaller,
worth somewhere between 15 billion yuan and 25 billion yuan, one
of the people said.
    Digital China, the main distributor for Honor phones, has
emerged as the frontrunner but other prospective buyers include
Chinese electronics maker TCL and rival smartphone maker Xiaomi
Corp  1810.HK , the people said.
    The sources declined to be identified as the talks were
confidential.
    Huawei and TCL declined to comment. Digital China and Xiaomi
did not respond to requests for comment. 
    The Honor brand was established by Huawei in 2013 but the
business mostly operates independently from its parent. It
competes with Xiaomi, Oppo and Vivo in China's highly
competitive budget phone market and its phones are also sold in
Southeast Asia and Europe.
    Kuo Ming-chi, an analyst at TF International Securities, has
said that any sale by Huawei of the Honor smartphone business
would be a win-win situation for the Honor brand, its suppliers
and China's electronics industry.
    "If Honor is independent from Huawei, its purchase of
components will no longer be subject to the U.S. ban on Huawei.
This will help Honor's smartphone business and the suppliers,"
he wrote in a research note last week. 
    The budget phone industry operates on thin margins and Honor
booked less than 5 billion yuan in net profit on revenue of
about 70-80 billion yuan last year, said one of the people.
    If successful in its bid, Digital China, which also partners
with Huawei in cloud computing and other businesses, plans to
finance the bulk of deal with bank loans and is set to secure
the financing in the coming weeks, the people said.
    Shares in Shenzhen-listed Digital China were up 6% in
Wednesday afternoon trade.
    
($1 = 6.7389 Chinese yuan)

 (Reporting by Julie Zhu in Hong Kong; Additional reporting by
David Kirton in Shenzhen; Editing by Sumeet Chatterjee and
Edwina Gibbs)
 ((julie.zhu1@thomsonreuters.com; +852 2843 6519; Reuters
Messaging: julie.zhu1.thomsonreuters.com@reuters.net))