Huawei to sell Honor smartphone unit to Shenzhen government, others in $15 billion deal

(Reuters) — Huawei plans to sell budget-brand smartphone unit Honor in a 100 billion yuan ($15.2 billion) deal to a consortium led by handset distributor Digital China and the government of its home town of Shenzhen, people with knowledge of the matter told Reuters.

The plan comes as U.S. restrictions on supplying Huawei force the world’s second-biggest smartphone maker — after South Korea’s Samsung — to focus on high-end handsets and corporate-oriented business, the people said, declining to be identified due to confidentiality constraints.

The deal also indicates little expectation of any swift change in the U.S. perception of Huawei as a security risk following a change in U.S. administration, one of the sources said.

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

Main Honor distributor Digital China Group will become a top-two shareholder of sold-off entity Honor Terminal, with an almost 15% stake, the sources said. Honor Terminal was incorporated in April and is fully owned by Huawei, the corporate registry showed.

Digital China, which also partners with Huawei in businesses such as cloud computing, plans to finance the bulk of the deal with bank loans, the sources said. Digital China will be joined by at least three investment firms backed by the government of financial and technology hub Shenzhen, with each owning 10% to 15%, they said.

After the sale, Honor plans to retain most of its management team and 7,000-plus workforce and go public within three years, the sources said.

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

The U.S. government last year moved to prevent most U.S. companies from conducting business with Huawei — also the world’s biggest telecoms equipment vendor — citing national security concerns. Huawei has repeatedly denied being a security risk.

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

Huawei established Honor in 2013, but the business mostly operates independently. 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 market for lower-priced handsets. It also sells its phones in Southeast Asia and Europe.

Honor brand smartphones made up 26% of the 51.7 million handsets Huawei shipped in July-September, according to estimates from researcher Canalys. Honor’s products also include laptops, tablet computers, smart TVs, and electronic accessories.

With margins thin for lower-end phones, Honor booked about 6 billion yuan in net profit on revenue of around 90 billion yuan last year, one of the sources said, citing audited figures.

(Reporting by Julie Zhu, additional reporting by David Kirton. Editing by Christopher Cushing.)