Huawei sells budget phone unit Honor to state-backed firms, distribution partners

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Ren Zhengfei, founder and chief executive officer of Huawei Technologies Co., attends an interview at the company's headquarters in Shenzhen, China, on Tuesday, Jan. 15, 2019. Ren, the billionaire telecom mogul, broke years of public silence to dismiss U.S. accusations the telecoms giant helps Beijing spy on Western governments and to praise Donald Trump for his tax cuts. Photographer: Qilai Shen/Bloomberg via Getty Images

After weeks of rumors, Huawei confirmed it is selling Honor to a consortium of companies, including government-backed firms, Honor's distribution partners and suppliers, in a move to save its budget phone brand from U.S. pressure.

The decision was announced in a joint statement released Tuesday morning in a local Shenzhen paper. Once the transaction is complete, Huawei won't hold any shares in Honor or be involved in the phone brand's management and decision-making, though Honor's company direction and management team will remain intact.

"This acquisition represents a market-driven investment made to save Honor's supply chain. It is the best solution to protect the interests of Honor's consumers, channel sellers, suppliers, partners, and employees," said the statement signed by the 40 companies.

Huawei lost major chip and software suppliers after the U.S. government slapped trade sanctions on the telecoms equipment and smartphone giant. A spin-out can in theory exempt Honor, a sub-brand launched to counter Xiaomi's cheap, online-focused smartphones, from the supply chain restrictions that have struck Huawei hard.

In the meantime, no one in the consortium poses an existential threat to Huawei's market position. That leaves enough leeway for Huawei if it ever wants to buy Honor back from the group of government-backed firms and phone dealers and agents.

Members in the consortium include Shenzhen Smart City Technology Development Group, a state-backed organization tasked with promoting cloud, 5G, smart city tech amongst other state enterprises; China Postal and Telecommunications Appliances, a state-owned distribution provider of telecoms products; and electronics retailers like Suning and Sundan.

The announcement did not put a price tag on the purchase, though Reuters previously reported it could cost 100 billion yuan ($15 billion).

The story was updated with more context and the headline was updated to clarify the buyers include "state-backed firms" rather than the "government".