Sale of Honor could prove to be a bad idea

Sale of Honor could prove to be a bad idea
Huawei's sub-brand Honor, which it has decided to sell, could become a competitor in the future, suggests a new report from DigiTimes.

Huawei's smartphone business unit is struggling to survive because of the restrictions imposed by the US. America has a stranglehold on the supply chain, not just because many key firms are US-based, but also because US-origin technology is an integral part of components made by Japanese, Taiwanese, and South Korean suppliers too. 

Although restrictions seem to be easing up, it's clear that the country wants to keep the Chinese company on a tight leash. For instance, although Qualcomm has been granted the permit to conduct business with Huawei, the license only covers 4G smartphones

Huawei says it has decided to let go of Honor to ensure its survival. Although the company is being sold to a new government-backed entity, it will probably not face the same restrictions as Huawei.

Some analysts believe that Huawei is selling the subsidiary to raise cash for investment in its chip-making technology, something that would make it less reliant on US technology in the future. 

According to the people privy to the specifics of the agreement, the Honor deal could bring in 100 billion yuan ($15.2 billion).

Huawei will have no stake in Honor whatsoever once the deal is finalized and that's why the relationship between the two companies will likely not be as cordial as that between Xiaomi and it's sub-brand Redmi, and Realme and sister concerns owned by parent company BBK Electronics (Oppo, OnePlus, and Vivo).

Honor is a youth-centric company that makes affordable handsets. Huawei says that over 70 million Honor-branded phones are shipped annually. 

Once it establishes itself as an independent brand, there is no stopping it from targeting the high-end segment and this would make it a direct competitor of Huawei. 

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For now, Honor is still very much dependent on Huawei, and it will be interesting to see how the relationship evolves over the course of the next few years.

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