It's "likely" Huawei will make this major move says highly accurate analyst

TF International analyst Ming-Chi Kuo is well known for his amazing calls on Apple. But that doesn't mean that Kuo doesn't make forecasts related to other companies besides Apple. For example, the analyst is now saying that with the U.S. constantly in Huawei's face, some good might come out of the sale of the company's Honor sub-unit. If the ties between Huawei and Honor are cut, the latter would no longer be bound by the restrictions that the U.S. has placed on it. These restrictions include the inability of the company to access its U.S. supply chain and receive cutting-edge chips from foundries that use U.S. technology to manufacture chips.

While Kuo isn't telling clients that such a deal is definitely going to take place, the analyst says that it is likely to occur. And if it does, he believes that it will be a win-win situation for the Honor brand, the firm's suppliers, and China's electronics industry as a whole. Once free of the anchor named Huawei, Honor will be able to develop and manufacture high-end smartphones which is a segment of the market that it is currently not involved in.

According to the English language South China Morning Post (SCMP), Kuo's note says, "If Honor is independent from Huawei, its sourcing will no longer be subject to the US ban on Huawei, which will help Honor’s smartphone business and the suppliers." The analyst also states that an independent Honor would be tough competition for value manufacturer Xiaomi since they both sell handsets in a similar price range. Huawei started the Honor line in 2013 to help it sell phones tagged at $150 to $220 aiming the devices at young consumers. The brand has helped Huawei surpass Apple and Samsung (earlier this year) to become the world's largest smartphone manufacturer despite attempts by the U.S. to make life difficult for the company.

Honor uses online sales to distribute its handsets and it has generated over $10 billion in sales over the last five years. IDC and Strategy Analytics say that Honor has accounted for 28% and 38% of Huawei's first-half shipments this year, respectively. Fitch Solutions analyst Kenny Liew says that "Honor is a very well-established brand in the low-to mid-range segment, and has been key for Huawei to make inroads into many developing markets around the world. At the same time, Honor continues to rely heavily on Huawei’s distribution channels, expertise in chip design and manufacturing capabilities to produce and sell its products." Liew does not expect to see Huawei sell-off Honor, and this evening several Huawei employees said on Weibo that there is nothing to Kuo's rumor.

If the current Trump administration is voted out of office next month, a new administration would take over in January and could reverse the restrictions. However, until such changes are made, Huawei still has to abide by the current rules that do threaten its survival after the current year. In the U.S., Huawei is considered a national security threat due to its perceived ties with the Communist Chinese government.

Huawei is not expected to benefit greatly from divestiture of Honor as the latter would experience most of the upside. There is concern that the U.S.-China trade war could impact Honor even if the company becomes independent. Bryan Ma, vice-president of client devices research at IDC said that "Even if Honor becomes a separate business, that doesn‘t guarantee that it won’t get caught up in the trade war later." And not all analysts think that Honor is an up and coming brand. Linda Sui, director of smartphone research at Strategy Analytics, says that no other Chinese company would buy it. "It’s a hot potato," she said. "It will create big trouble for whoever takes it over."