Exclusive: Huawei to sell $ 15 billion honor unit to Shenzhen government, digital China and others – sources

HONG KONG (Reuters) – Huawei plans to sell the economy-branded Honor smartphone unit in a 100 billion yuan ($ 15.2 billion) deal to a consortium led by handset distributor Digital China and the government of his hometown of Shenzhen, people with knowledge of the matter told Reuters.

The plan comes as US restrictions on the supply of Huawei Technologies Co Ltd force the world’s second-largest smartphone maker – after South Korea’s Samsung Electronics Co Ltd 005930.KS – focus on high-end handsets and enterprise-oriented business, people said.

It also indicates little expectation for a rapid change in the U.S. perception of Huawei as a security risk following a change in U.S. administration, one of the people said.

The cash sale will include almost all assets, including brand, research and development capabilities, and supply chain management, the people said. Huawei could announce it as early as Sunday, one of the people said.

Main Distributor of Honor Digital China Group Co Ltd 000034.SZ will become one of the two main shareholders of the divested entity Honor Terminal Co Ltd with a stake of nearly 15%, two of the people said. Honor Terminal was incorporated in April and is wholly owned by Huawei, the company’s register showed.

Digital China, which is also Huawei’s partner in ventures such as cloud computing, plans to fund most of the deal with bank loans, the two said. He will be joined by at least three government-backed investment firms from the Shenzhen Financial and Technology Center, each holding 10% to 15%, they said.

After the sale, Honor plans to keep most of its management team and more than 7,000 employees and go public within three years, the people said, declining to be identified due to confidentiality constraints.

Honor declined to comment. Huawei, Digital China and the Shenzhen government did not immediately respond to requests for comment.

PUNISHMENTS

Last year, the US government decided to bar most US companies from doing business with Huawei – also the world’s largest supplier of telecommunications equipment – citing national security concerns. Huawei has repeatedly denied being a security risk.

In May, Washington announced rules to restrict Huawei’s ability to source chips featuring U.S. technology for use in fifth generation (5G) telecommunications network equipment and smartphones such as its premium P series and Mate.

Huawei established Honor in 2013, but the company mainly operates independently. The divestment will mean Honor is no longer subject to Huawei’s U.S. sanctions, analysts said.

Honor sells smartphones through its own websites and third-party retailers in China, where it competes with Xiaomi, Oppo, and Vivo in the low-cost handset market. It also sells its phones in Southeast Asia and Europe.

Honor-branded smartphones accounted for 26% of the 51.7 million handsets delivered by Huawei in July-September, according to estimates by researcher Canalys. Honor products also include laptops, tablets, smart TVs and electronic accessories.

With slim margins for low-end phones, Honor reserved around 6 billion yuan in net profit on sales of around 90 billion yuan last year, one of the people said, citing audited figures.