Huawei is in early-stage talks to sell its premium smartphone brands P and Mate, a move that could signal the company’s exit from the high-end smartphone-making business.
The talks between the world's largest telecommunications equipment maker and a consortium led by Shanghai government-backed investment firms have been going on for months, sources have revealed.
It’s claimed Huawei started to explore the possibility of selling the brands as early as last September but no valuation for the two brands has been suggested.
Shipments of Mate and P Series phones were worth $39.7 billion between Q3 2019 and Q3 2020, according to consultancy IDC.
However, Huawei has yet to make a final decision on the sale and the talks might not conclude successfully, according to the sources, as the company is still trying to manufacture its in-house designed high-end Kirin chips which power its smartphones.
But a Huawei spokesman said: ”Huawei has learned there are unsubstantiated rumours circulating regarding the possible sale of our flagship smartphone brands. There is no merit to these rumours whatsoever. Huawei has no such plan."
The potential sale of Huawei's premium smartphone lines suggests the company has little hope that the new Biden administration will have a change of heart on the supply chain restrictions placed on Huawei since May 2019.
The Shanghai government-backed investment firms could form a consortium with Huawei's dealers to take over the P and Mate brands, it’s claimed, a similar model to the Honor deal. Huawei is also likely to keep its existing P and Mate management team for the new entity, if the deal goes through.
Huawei, the world's biggest telecoms equipment vendor and second biggest smartphone maker, announced in November the sale of its budget phone brand Honor to a consortium of 30 dealers led by a company backed by the Shenzhen government.
That all-cash sale is said to have fetched more than 100 billion yuan ($15.5 billion). Honor declined to comment.
The Honor sale was aimed at keeping the budget brand alive, as sanctions slapped on Huawei by the United States had hampered the unit's supply chain and cut off the company's access to key hardware like chips and software such as Alphabet Inc's Google Mobile Services.
Huawei may have a similar objective in pursuing the sale of the mobile brands. The two sources said that Huawei's latest plans for the two high-end brands were motivated by insufficient chip supplies.
Washington claims that Huawei is a national security threat, which Huawei has repeatedly denied.
On Friday, Honor indicated that the goal of the spin-off had been reached by announcing it had formed partnerships with chip makers such as Intel and Qualcomm and launched a new phone.
Last year, the company's Consumer Business Group Chief Executive Richard Yu said US restrictions meant Huawei would soon stop making Kirin chips. Analysts expect its stockpile of the chips to run out this year.
Huawei’s HiSilicon division relies on software from US companies such as Cadence Design Systems Inc or Synopsys Inc to design its chips and it outsources the production to Taiwan Semiconductor Manufacturing Co (TSMC), which uses equipment from US firms.
The P and Mate phone series are among the top players in the higher-end smartphone market in China and compete with Apple's iPhone, Xiaomi Corp's Mi and Mix series and OPPO's Find series.
The two brands contributed nearly 40% of Huawei's total sales over the third quarter of 2020, according to market research firm Counterpoint.
Analysts have already noted recent insufficient supplies of the flagship P40 and Mate40 series due to a severe components shortage.
"We expect a continuous decline in sales of P and Mate series smartphones through Q1 2021," said Flora Tang, an analyst at Counterpoint.