Huawei Investment & Holding Co., Ltd., has agreed to sell all of it Honor budget smartphone business to Shenzhen Zhixin New Information Technology Co.,Ltd., a company jointly founded by a consortium of over 30 agents and dealers of Honor brand and state-owned Shenzhen Smart City Technology Development Group Co.,Ltd., according to a joint statement Tuesday.

The statement didn't disclose the acquisition price. Local news reports estimated the deal is worth $40 billion, while Reuters reported last week an all-cash sale worth $15.1 billion.

Honoring The Deal

The agents and dealers said the acquisition represents "a market-driven investment made to save Honor's industry chain" and is "the best solution" to protect the interests of the brand's consumers, channel sellers, suppliers, partners and employees, according to the joint statement.

Honor has generated over $10 billion in revenue over the past five years. Analysts estimated the brand contributed 28% to 38% of Huawei's total smartphone shipments during the first half of 2020.

Facing U.S.-initiated legal restrictions barring Huawei from purchasing most high-end semiconductor chips, the company divested its budget-branded smartphone line to ensure revenues from this unit would not be squeezed by restrictions, said analysts. 

Washington last year barred Huawei from doing business with organizations in the U.S. Up to 38 Huawei affiliates were added to the entity list when an August 2020 order took effect Sep. 15, restricting the use of U.S. software or technologies in Huawei products. 

"Suppliers, manufacturers, distributors and channel sellers under the Honor brand have been all facing critical difficulties," sources close to the deal told Xinhua News Agency, "Over 1 million people could lose their jobs if not handled well." 

The U.S. sanctions will cause Huawei's revenue to drop by billions of dollars, said founder and chief executive officer Ran Zhengfei last year.

Separate Businesses, Long-Term Allies

Positioned as a budget smartphone brand, Honor concentrates on younger customers with its fashionable design and features and claims to have delivered over 70 million handset sales annually over the past seven years. Its cheapest smartphone Honor X10 with the Kirin 820 5G processor costs 1,699 yuan ($259.3).

As a sub-brand of Huawei since 2011, Honor saw its market penetration increase, while taking in $109 million rising to $2.4 billion revenue between 2013 and 2014, according to public information. Starting from 2015, the company spent $100 million promoting 15 kinds of products including smartphone handsets, tablet computers and wearable technologies under the Honor brand in 18 countries. 

As of the third quarter of 2020, Honor accounted for 15% of China's smartphone market, while Huawei accounted for 41.2%, according to Counterpoint and Canalys. In the short term, both Honor and Huawei expect to be supported by domestic consumers, said analysts.

The change in ownership will not affect Honor's development or the stability of its executives and staff, according to the acquisition deal.

Zhao Ming, the former president of Honor, changed his position title to chief executive officer.

Shenzhen Zhixin New Information Technology, which was established Sept. 27 is 98.6% owned by Shenzhen Smart City Technology Development Group, according to Chinese corporate information platform Tianyancha.

The change in ownership means Honor can regain access to semiconductors, said analysts.