Huawei sell­ing Honor phone brand in face of US sanc­tions

- BY JOE MCDON­ALD & ZEN SOO Business · Tech · Gadgets · Consumer Goods · Investing · Technology Industry · Industries · Huawei · Beijing · Washington · Shenzhen · Joe Biden · United States of America · Google · Xiaomi Tech · the Chinese government · Donald Trump · Canada · Iran · White House · Canalys · Meng Wanzhou · Ren Zhengfei

BEI­JING—CHI­NESE tech gi­ant Huawei is sell­ing its bud­get-price Honor smart­phone brand in an ef­fort to res­cue the strug­gling busi­ness from dam­ag­ing US sanc­tions im­posed on its par­ent com­pany. The sale an­nounced on Tues­day is aimed at re­viv­ing Honor by sep­a­rat­ing it from Huawei’s net­work equip­ment busi­ness, which Wash­ing­ton says is a se­cu­rity threat, an ac­cu­sa­tion Huawei de­nies. It is un­der sanc­tions that block ac­cess to most US pro­ces­sor chips and other tech­nol­ogy.

Huawei Tech­nolo­gies Ltd.’s an­nounce­ment gave no fi­nan­cial de­tails but said the com­pany will have no own­er­ship stake once the sale is com­pleted. Huawei will re­tain its flag­ship Huawei smart­phone brand.

The buyer is a state-owned com­pany in Shen­zhen, the south­ern city where Huawei is head­quar­tered, and a group of Honor re­tail­ers. Ear­lier news re­ports on ru­mors of a pos­si­ble sale put the price as high as 100 bil­lion yuan ($15 bil­lion).

“The move has been made by Honor’s in­dus­try chain to en­sure its own sur­vival,” said the Huawei statement. The buy­ers said in a sep­a­rate statement the split was “the best so­lu­tion” to pro­tect cus­tomers and em­ploy­ees.

Huawei, China’s first global tech brand and the big­gest maker of switch­ing equip­ment used by phone and In­ter­net com­pa­nies, is at the cen­ter of Us-chi­nese ten­sion over tech­nol­ogy, se­cu­rity and spy­ing. The feud has spread to in­clude the pop­u­lar Chi­nese-owned video app Tik­tok and mes­sag­ing ser­vice Wechat.

Econ­o­mists and po­lit­i­cal an­a­lysts ex­pect lit­tle change in US pol­icy to­ward China un­der Pres­i­den­t­elect Joe Bi­den due to wide­spread frus­tra­tion with Bei­jing over trade and tech­nol­ogy.

Huawei ap­pears to be pre­par­ing for hard times by fo­cus­ing its re­sources on its high-end smart­phones, said Ni­cole Peng of Canalys.

The sale is “def­i­nitely a sign of weak­ness,” said

Ni­cole Peng of Canalys. “It shows Huawei knows that the sit­u­a­tion will not change im­me­di­ately be­tween China and the US,” Peng said.

Tues­day’s an­nounce­ments gave no in­di­ca­tion how Honor planned to re­gain ac­cess to US chips and other tech­nol­ogy in­clud­ing Google’s pop­u­lar mu­sic, maps and other ser­vices. Other Chi­nese smart­phone brands such as Xiaomi, Oppo and Vivo op­er­ate with­out such re­stric­tions.

“In the­ory, Honor would be like any other Chi­nese OEM [man­u­fac­turer],” said Ki­ran­jeet Kaur of IDC in an email. How­ever, he said Honor needs time to re­store ac­cess to sup­pli­ers and set up its own re­search and de­vel­op­ment. “The chal­lenge re­mains how quickly it de­taches it­self from its de­pen­dence on Huawei and gets ac­cess to all the rel­e­vant tech,” said Kaur.

US se­cu­rity com­plaints fo­cus on Huawei’s net­work gear and lead­ing role in next-gen­er­a­tion tele­com tech­nol­ogy.

Amer­i­can of­fi­cials say Huawei might fa­cil­i­tate Chi­nese spy­ing, which the com­pany de­nies. They also see Chi­nese gov­ern­ment-sup­ported tech­nol­ogy de­vel­op­ment as a threat to US in­dus­trial dom­i­nance. The Trump ad­min­is­tra­tion is lob­by­ing Euro­pean and other al­lies to ex­clude Huawei and other Chi­nese sup­pli­ers as they up­grade net­works.

Mean­while, Huawei’s chief fi­nan­cial of­fi­cer, Meng Wanzhou, the daugh­ter of com­pany founder Ren Zhengfei, is un­der ar­rest in Canada and fight­ing ex­tra­di­tion to the United States to face charges re­lated to pos­si­ble vi­o­la­tions of trade sanc­tions on Iran.

Sanc­tions im­posed last year block Huawei’s ac­cess to most US pro­ces­sor chips and other tech­nol­ogy. Those were tight­ened in May when the White House barred man­u­fac­tur­ers world­wide from us­ing US tech­nol­ogy to pro­duce chips for Huawei, in­clud­ing those de­signed by its own en­gi­neers.

Honor, founded in 2013, is one of the world’s big­gest-sell­ing smart­phone brands. Huawei says it ships 70 mil­lion hand­sets a year. To­tal ship­ments of Huawei and Honor hand­sets fell 5 per­cent from a year ear­lier in the quar­ter end­ing in June to 55.8 mil­lion, ac­cord­ing to Canalys. Sales in China rose 8 per­cent but ship­ments abroad fell 27 per­cent.

Huawei re­ported ear­lier to­tal rev­enue for the first nine months of 2020 rose 9.9 per­cent to 671.3 bil­lion yuan ($100.4 bil­lion). That was down from 13.1 per­cent growth in the first half, but the com­pany said it still was prof­itable.

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