Huawei is in talks with companies like Digital China Group and others to sell part of its Honor smartphone business. People familiar with the deal have stated that Huawei is looking to fetch $3.7 billion with it.
Huawei to sell part of its Honor smartphone business, shifting focus to higher-end smartphones
Huawei is shifting its focus to higher-end smartphones rather than the Honor brand, which is best suited for young people and budget-friendly people. This decision has been made in face of potential US sanctions.
It could be an all-cash deal and includes Huawei’s Honor brand, its research and development capabilities, and the supply chain management business. Among the potential bidders like Chinese electronics maker TCL and smartphone maker Xiaomi Corp, the frontrunner for the deal is the Digital China Group. The sources close to the deal have declined to be identified since the talks are still confidential.
Honor brand will not be affected by the US ban, in case of a successful deal
The sale of the Honor smartphone business by Huawei would be a win-win for the Honor brand, its suppliers, and the Chinese electronics industry. In the case of the sale, its purchase of components will not be affected by the US ban on Huawei. It would help the smartphone business as well as its suppliers.
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Last year, the US government moved to restrict several US companies from doing business with Huawei, stating that the tech giant was answerable to the Chinese government. Washington also published new rules and regulations that restricted Huawei from procuring crucial chips required for the design of 5G networking gear and smartphones.
Digital China Group to finance the majority of the deal with bank loans
Huawei’s Honor brand competes with Xiaomi, Oppo, and Vivo in the lower-end phone market by selling its phone online on several sites and third-party retailers. Its smartphones are sold in Southeast Asia and Europe. According to research firm Canalys, the Honor brand smartphones accounted for 14.6 million in the Q2 of this year. But, the margins for these lower-end smartphones can be thin.
If this deal falls through, Digital China plans to finance the majority of the deal with bank loans and secure the financing in the coming weeks. It has currently partnered with Huawei in the cloud computing business.
The Digital China shares rose initially by their maximum daily limit of 10% but, later reduced to stand 3% higher on this Wednesday, giving the company a market value of close to $2.9 billion.