Huawei in talks to sell parts of its Honor smartphone business

HONG KONG, Oct 14 (Reuters): Huawei Technologies Co Ltd is in talks with Digital China Group Co Ltd and other suitors to sell parts of its Honor smartphone unit in a deal that could fetch up to 25 billion yuan ($3.7 billion), people with knowledge of the matter said.

Embattled Huawei is resetting its priorities due to US sanctions and will focus on its higher-end Huawei phones rather than the Honor brand which is aimed at young people and the budget conscious, they said.

The assets to be sold have yet to be finalised but could include Honor's brand, research & development capabilities and related supply chain management business, two of the people said.

The deal may be an all-cash sale and could end up smaller, worth somewhere between 15 billion yuan and 25 billion yuan, one of the people said.

Digital China, the main distributor for Honor phones, has emerged as the frontrunner but other prospective buyers include Chinese electronics maker TCL and rival smartphone maker Xiaomi Corp, the people said, declining to be identified as the talks were confidential.

Huawei, the world's biggest telecoms equipment vendor and No.2 smartphone maker, declined to comment as did TCL. Digital China and Xiaomi did not respond to requests for comment.

The Honor brand was established by Huawei in 2013 but the business mostly operates independently from its parent.

Kuo Ming-chi, an analyst at TF International Securities, has said that any sale by Huawei of the Honor smartphone business would be a win-win situation for the Honor brand, its suppliers and China's electronics industry.

"If Honor is independent from Huawei, its purchase of components will no longer be subject to the US ban on Huawei. This will help Honor's smartphone business and the suppliers," he wrote in a research note last week.

The US government last year moved to prevent most US companies from conducting business with Huawei, saying the tech giant was ultimately answerable to the Chinese government. Huawei has repeatedly denied being a national security risk.

In May, Washington announced new rules aimed at constricting Huawei's ability to procure crucial chips that it designs for 5G networking gear and smartphones.