Rumors that the number one smartphone manufacturer is considering selling it remaining smartphone business, which makes up roughly half of Huawei’s (pvt) sales (consumer division) in 1H 2020, which was up 13.1% y/y despite the COVID-19 pandemic. Of course, things deteriorated from that point as the Trump administration tightened trade sanctions against the company and choked off its supply of semiconductors and mobile software.. The company has responded to these rumors stating that “it has no plans to sell the mobile phone business at all and will insist on building the world’s leading high-end smartphone brand and strive to provide consumers with excellent product experience and services.”
That said, last year around November 11, similar rumors about the sale of Huawei’s Honor brand also surfaced, with the CEO of Huawei’s Consumer Business unit and the President of Honor denying a sale publicly, yet days later Huawei acknowledged that ‘nothing final’ had been agreed upon and the actual sale of Honor acknowledged on November 17th.
While it would be a major change for Huawei to divest its commercial smartphone business, it does leave it open to further development of its Hongmeng operating system, which it provides as an alternative to Google’s (GOOG) Android, much of which it has been prohibited from using by the US restrictions. Huawei has been developing the Hongmeng OS for years and it has a number of characteristics that make it a viable alternative, but if only Huawei uses it, it has a limited chance of becoming a significant OS. Other Chinese smartphone brands would need to adopt the OS in order for it to garner enough momentum to become a potential android or other OS challenger, but as Huawei is a competitor to those brands, it is not likely. If Huawei were to exit the smartphone business and focus on developing Hongmeng for iOt and other applications, there would be a much better chance that others would adopt the OS, just as Google does not compete with its smartphone customers.
Normally we would not consider divesting such a vast swath of Huawei’s business as a vehicle for potential long-term growth in other businesses, but unless the Biden administration has some interest in easing restrictions on Huawei licensing, the company has few alternatives. We note that even if they were to sell the smartphone business, the restrictions would still affect Huawei’s other products, however the lack of silicon availability, especially below 28um, would be far less onerous for the telecom business, with local Chinese semiconductor suppliers more able to fill the gaps than when trying to compete with 7nm or 5nm fabs. Again, moving Huawei from a focus on hardware to one on software would be an immense challenge, and an unprecedented one for a Chinese company of that size, however ‘Necessity is the Mother of Invention’….
That said, last year around November 11, similar rumors about the sale of Huawei’s Honor brand also surfaced, with the CEO of Huawei’s Consumer Business unit and the President of Honor denying a sale publicly, yet days later Huawei acknowledged that ‘nothing final’ had been agreed upon and the actual sale of Honor acknowledged on November 17th.
While it would be a major change for Huawei to divest its commercial smartphone business, it does leave it open to further development of its Hongmeng operating system, which it provides as an alternative to Google’s (GOOG) Android, much of which it has been prohibited from using by the US restrictions. Huawei has been developing the Hongmeng OS for years and it has a number of characteristics that make it a viable alternative, but if only Huawei uses it, it has a limited chance of becoming a significant OS. Other Chinese smartphone brands would need to adopt the OS in order for it to garner enough momentum to become a potential android or other OS challenger, but as Huawei is a competitor to those brands, it is not likely. If Huawei were to exit the smartphone business and focus on developing Hongmeng for iOt and other applications, there would be a much better chance that others would adopt the OS, just as Google does not compete with its smartphone customers.
Normally we would not consider divesting such a vast swath of Huawei’s business as a vehicle for potential long-term growth in other businesses, but unless the Biden administration has some interest in easing restrictions on Huawei licensing, the company has few alternatives. We note that even if they were to sell the smartphone business, the restrictions would still affect Huawei’s other products, however the lack of silicon availability, especially below 28um, would be far less onerous for the telecom business, with local Chinese semiconductor suppliers more able to fill the gaps than when trying to compete with 7nm or 5nm fabs. Again, moving Huawei from a focus on hardware to one on software would be an immense challenge, and an unprecedented one for a Chinese company of that size, however ‘Necessity is the Mother of Invention’….
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