Huawei potentially selling Honor could help the budget smartphone unit maintain market share outside of China

  • Huawei is reportedly looking to sell its budget smartphone brand Honor.
  • This could help Honor maintain market share outside of China as it wouldn't be subject to the same sanctions as Huawei. 

Huawei, the top smartphone maker in the world by shipments, is reportedly looking to sell its budget smartphone brand Honor, according to Reuters. Anonymous sources familiar with the matter told Reuters that the deal could be worth 15–25 billion yuan ($2.3–3.7 billion). Huawei's competitor Xiaomi is believed to be among the bidders, as are electronics distributor Digital China and smartphone manufacturer TCL. Huawei shipped 55.8 million smartphones globally in Q2 2020, 26% of which were sold under the Honor brand, per Canalys.

Honor could be better positioned for growth split off from Huawei, since separation may reduce its exposure to trade restrictions. Huawei isn't short on cash or funding, so the Honor deal likely isn't motivated by a desire for liquidity. Instead, Huawei may be motivated by a desire to free Honor of the geopolitical baggage that comes with operating under the Huawei umbrella. Since Huawei's telecom equipment has become a lightning rod for US-China trade tensions, Huawei is subject to more intense international trade restrictions than any other China-based smartphone brand.

As a spun-off company, Honor stands a better chance than Huawei in maintaining trade access to places like India and Eastern Europe: In Q1 2019, nearly half of all Huawei devices were shipped outside of China, but as sanctions grew more intense, that sank to just 28% in Q2 2020, according to Canalys. As a spun-off entity, Honor may also have an easier time sourcing components from critical suppliers that are currently banned from doing business with Huawei, such as Samsung and TSMC. It is important to note, however, these advantages could be eviscerated overnight, should the US decide to expand the scope of its sanctions.

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