US-China tech war: moment of truth looms for ex-Huawei unit Honor in new smartphone launch

23-Jan-2021 Intellasia | South China Morning Post | 6:02 AM Print This Post

Huawei Technologies Co’s former budget smartphone brand, Honor, will unveil its first new device as an independent company on Friday, serving as an example of how domestic enterprises tied to firms blacklisted by Washington can survive the US-China tech war.

Huawei sold all of Honor’s assets in November to Shenzhen Zhixin New Information Technology, a consortium of more than 30 agents and dealers of the budget smartphone vendor. The divestment was made to ensure that Honor’s business would continue, according to Huawei, after the US government imposed tighter trade restrictions on the telecommunications equipment giant in August last year.

Honor, which was previously part of the Huawei consumer business group’s dual-brand strategy, will launch its new V40 flagship 5G smartphone on Friday, the company announced on its website. Honor plans to produce 100 million smartphones this year, an increase of 40 per cent from its 2020 output, according to a report by Nikkei Asia, citing unidentified sources.

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“Huawei’s decision to divest [Honor] was very prudent, allowing it to salvage the market momentum, scale and all the investments it has made over the years,” said Neil Shah, vice-president at Counterpoint Research. “In future, Huawei could reacquire its stake in Honor if the brand continues to do well and if US sanctions are alleviated under the new Biden administration.”

The new product launch by an independent Honor smartphone business would show there are available avenues to get around stifling US trade restrictions, which have blocked Huawei’s access to Google software and services, and chips made with American software and technology, even from companies outside the US.

“According to our industrial checks, the current trade restrictions on Huawei are not extended to the new Honor, so the company will be able to work with [US hi-tech suppliers like] Google and Qualcomm,” said Flora Tang, a Hong Kong-based analyst at Counterpoint Research. “For Honor, this is an opportunity to survive in the global consumer electronics industry.”

Founded in 2013, Honor was the unsung hero that helped Huawei overtake Apple and Samsung Electronics in sales at home and abroad by offering trendy smartphones, with an average selling price of between $150 to $220, to young consumers.

“Google Mobile Services (GMS) are likely to be integrated on Honor’s upcoming V40 smartphones,” said Tang of Counterpoint. “Honor has started to work with original design manufacturing partners and GMS has been approved for Honor, according to our industrial checks.” GMS is a collection of Google-developed apps and services, which are a big selling point for Android devices users outside China.

That would augur well for Honor, which has a growing number of users in Europe and the Asia-Pacific region.

The Honor brand had around a 5 per cent market share in Europe for the first nine months of last year, according to Counterpoint’s Shah. In the first three quarters of last year, Honor shipped 38 million smartphones globally, according to research firm Canalys, with full-year shipments expected to reach 50 million.

“Honor’s 5G push in China will be effective because it has strong brand recognition as well as online and offline distribution,” Shah said. “Outside China will be a bit tough until Honor strikes key partnerships with telecoms operators and invests in more marketing, which is a challenge for an upstart in the industry.”

Without Huawei’s backing, Honor also must deal with tougher supply chain issues.

“Even though Honor is expected to see less risk under the Biden administration, Honor faces the challenge of how to convince supply chain players to give it priority over other smartphone players amid the current component shortage in the industry,” said Will Wong, a Singapore-based analyst at market research firm IDC.

Whether other Chinese companies facing US restrictions could emulate what Huawei has done with Honor remains to be seen. “I expect these companies to wait and see if the new Biden administration will relax any restrictions on Chinese tech,” said Paul Haswell, a partner who advises technology companies at international law firm Pinsent Masons.


Category: China

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