Huawei Sells Smartphone Unit Honor to Ensure the Latter's Survival

Sun_Huixia

Sun_Huixia

· 2020.11.17

The value of the transaction was undisclosed. Nonetheless, it marked the most watched and far-reaching deal in the history of China's fast-growing smartphone industry. The Shenzhen government emerges as the ultimate controller upon the completion of the acquisition.

By Huixia Sun

BEIJING, November 16 (TMTPOST) – The dust finally settled following weeks of swirling rumors. Shenzhen Zhixinxin Information Technology Co. Ltd on Tuesday said in a statement that it had signed an agreement to acquire Huawei’s smartphone business unit Honor with the global telecom giant, whose 5G technologies are unrivaled in the world.

The statement was published on Shenzhen Special Zone Daily, the newspaper owned by Shenzhen Municipal Committee of the Communist Party of China (CPC). Under the agreement, Shenzhen Zhixinxin is obliged to acquire 100% of assets associated with the Honor brand. Upon the completion of the sale, Huawei, headquartered in Shenzhen, no longer has any stake in the smartphone business segment.

Shenzhen Zhixinxin, the buyer under the agreement, is a firm registered in September 2020 and backed by Shenzhen Smart City Technological Development Group and over 30 distributors and suppliers. However, Digital China and TCL, which were rumored to be potential buyers, did not appear on the long list of the consortium’s members.

In response to the statement, Huawei said that the sale was to make sure Honor and its suppliers will continue their business relationships in the face of restrictions on selling chips and other raw materials to Huawei.     

Huawei said explicitly that it will not involve in business management and decision-making matters upon the completion of the transaction.

The statement on the official newspaper did not disclose the value of the transaction. However, regardless of the transaction price, it marked Huawei’s bold action to salvage its sinking smartphone business as the danger of Honor being cut off from the global supply chain looms following Huawei being targeted by the U.S. Department of Commerce partially due to the Chinese firm’s supremacy in 5G technologies.

The compensation plan for current Honor employees has not been announced. It may take some time to separate Honor from Huawei.

As part of the spinoff, some employees of Honor will relocate temporarily to a new office in an industry park in Futian District, adjacent to its smartphone rival Vivo’s software department. The new office is reportedly being renovated. Honor will move to a permanent office after a transitional year in the industry park.

Based on the stockholding structure, Huawei is excluded from the operations of the post-transaction firm. But Huawei’s legacy will stay at Honor based on new management appointments.

According to the statement, the change in the ownership will not change business strategies of the firm and the management will remain largely unchanged.

Huawei’s consumer business Chief Operation Officer Wan Biao will lead the Board of Directors of Honor while Honor’s current President Zhao Ming will become CEO of the independent smartphone maker.

Zhao, a 22-year veteran at Huawei, is one of Honor’s senior executives with capabilities to best mobilize nearly 8,000 employees of the smartphone maker. During his tenure as president since March 2013, Honor evolved into one of fast-growing smartphone makers by sales in the world.

Furthermore, the directors of legal affairs, IT and quality assurance at Huawei’s consumer business segment will also join the new firm.

Who is the Buyer?

The ultimate majority shareholder of Shenzhen Zhixinxin, founded about two months ago, is Shenzhen State-owned Assets Supervision and Administration Commission (Shenzhen SASAC), according to Tianyancha corporate information website. 

Digital China, TCL and Xiaomi did not become minority shareholders of the acquiring firm. Instead, marketing firms and suppliers end up as shareholders mainly because sale and supply channels are vital to Honor and it does not really need capital injection from a buyer due to its abundant cash flows from sales.

 

 

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