The US chip ban on Huawei in September was the ultimate nail in the coffin for the model’s smartphone enterprise. Regardless that the Chinese language smartphone large has reportedly stockpiled chipsets for the subsequent few months, it nonetheless gained’t be sufficient to maintain the extent of manufacturing and gross sales it has managed to attain over the previous few years. Contemplating the ban impacts each its smartphone manufacturers – Huawei and Honor, will probably be tough for the father or mother firm to proceed managing them with these constraints in place.
One viable possibility for Huawei could be to unload its Honor enterprise to somebody who shouldn’t be underneath the US’ radar. And based on Reuters, Huawei is in talks with a number of firms for a similar. One of many probably candidates is an organization referred to as the Digital China Group. Different potential patrons embrace Xiaomi and even TCL.
Whereas we now have little or no info on what’s taking place behind the scenes, the Reuters report states that Digital China is among the favorites to amass part of Honor’s smartphone enterprise.
However who’s Digital China and why would Huawei take into account promoting its booming Honor enterprise to an organization that’s comparatively unknown in the worldwide markets?
Who’s Digital China Group?
Digital China Group is a well-liked identify in the IT business in China however has little presence outdoors of the home market.
Digital China Group was established in 1981 and is headquartered in Beijing, China. It’s listed on the Shenzhen Inventory Trade. The corporate has a detailed relationship with Lenovo because it was as soon as part of its father or mother entity (Legend Holdings) earlier than splitting off as an unbiased firm in 2001.
Lenovo and Digital China have been a part of the Legend Holdings in the 80s. The father or mother firm began off its enterprise working as an company for prime PC firms like IBM, AST, and HP earlier than rolling out its personal Lenovo PC model in 1990.
By 2000, Legend (Lenovo) was the No.1 PC model in each China and the Asia Pacific. The corporate had grown to such an extent that it turned essential to separate it off into two separate entities, one dealing with the Lenovo PC enterprise and the opposite one, referred to as Digital China Holding, centered on its company and IT service companies. The corporate’s company enterprise had tie-ups with tons of of worldwide manufacturers. So the father or mother firm determined to ascertain the company division as a separate firm to keep away from inside conflicts with its personal Lenovo PC model.
In 2015, Digital China Holding offered its gross sales and distribution enterprise to Shenzhen Shenxin Taifeng Co Ltd for 4.01 billion yuan ($645.87 million). The ensuing firm was renamed because the Digital China Group Co Ltd in April 2016.
The Shenzhen listed Digital China Group Co. Ltd is China’s largest reseller of computer systems, servers, and community gear. This consists of the accountability of distributing PC and smartphones for manufacturers like Honor in the home market. The group has over 4000 staff and places of work in over 50 cities throughout China.
In keeping with Bloomberg, “Digital China Group Co., Ltd. engages in the communication service operation; analysis, improvement, manufacturing, and sale of communication gear; and software program improvement companies. It additionally supplies knowledge and voice, cloud computing and digital transformation, IT distribution, and value-added companies.”
Digital China is Very Near Huawei
Digital China has been Huawei’s distribution accomplice for over a decade. The corporate has been the overall distributor of Huawei’s enterprise merchandise since 2011. And Huawei and Digital China have additional deepened their partnership in the previous couple of years.
In truth, Canalys reviews that Huawei Enterprise Enterprise Group (EBG) accounted for 25% of Digital China’s total enterprise distribution enterprise in 2016. In 2018, the 2 firms introduced a joint technique referred to as ”Higher Huawei” to additional strengthen its relationship in quite a lot of rising fields.
It’s also value mentioning that Digital China was one of many solely two companions of Huawei Enterprise Group to have exceeded gross sales value 10 billion yuan ($1.49 billion) in 2018. The 2 firms work collectively in quite a lot of fields like sensible agriculture, sensible medical care, sensible metropolis improvement, and enterprise cloud companies.
The deep relationship with Digital china might be one of many huge explanation why Huawei may take into account promoting of part of its Honor enterprise to the corporate.
Editor’s Decide: Huawei sees sharp decline in development as a result of US Sanctions
Why Digital China Group would wish to purchase Honor’s smartphone enterprise?
Whereas Digital China Group is primarily engaged in gross sales and distribution of enterprise and community merchandise, it has shifted its deal with different companies too. The corporate revamped its technique just lately, aggressively increasing into newer fields like sensible metropolis improvement and cloud companies.
Digital China Group additionally has expertise with Honor, appearing because the distribution accomplice. Furthermore, till the ban, Honor was doing very well in China and even internationally, it was one of many prime 5 smartphone manufacturers in some markets. The corporate sells units in thousands and thousands, with a few of its particular person sequence registering greater than 10 million in gross sales.
Digital China’s shut relationship with Huawei is another excuse why it might be in this acquisition. As an alternative of promoting off Honor to rival firms like Xiaomi and even TCL, Huawei could be extra more likely to settle for a bid from somebody who has expertise coping with the Honor model and is near the father or mother firm.
The Reuters report states that the deal might be valued anyplace between 15 billion yuan to 25 billion yuan (US$2.24-$3.7 billion). If Digital China is profitable in its bid for Honor, it plans to finance this acquisition with financial institution loans in the approaching weeks.
Win-Win for each the Corporations
Honor is a extremely popular smartphone model in China and is thought in the worldwide markets too. The model has the power to develop worth for cash smartphones focused on the youthful era. If the corporate which purchases the model manages to acquire SoCs from chipmakers like MediaTek and Qualcomm, it may carry on promoting a variety of Honor branded smartphones in China and overseas. Additional, it may additionally reestablish the partnership with Google for GMS for Honor branded smartphones, opening up prospects in the worldwide market.
As for Huawei, will probably be relieved to see that the Honor model stays alive. Huawei together with Honor has captured 40% of the Chinese language smartphone market. And Honor accounted for over 25% of Huawei’s gross sales in the second quarter of 2020 (14.6 million) based on Canalys.
Promoting off Honor might be the proper transfer for Huawei. Even Ming-Chi Kuo, the favored analyst from TF Worldwide Securities says so. In his analysis be aware revealed final week, he talked about, “If Honor is unbiased from Huawei, its buy of parts will not be topic to the U.S. ban on Huawei. This can assist Honor’s smartphone enterprise and the suppliers.”
However there are nonetheless a variety of questions concerning the potential sale of Honor. The largest one is whether or not a change of possession will enable Honor to acquire parts and software program from US manufacturers like Google and Qualcomm.
The Digital China Group has labored intently with state-owned purchasers in China to combine IT companies in the previous couple of a long time. However then it’s additionally near Lenovo which up to now has had an excellent relationship with the US. So it stays to be seen if an organization like Digital China could be thought of as the proper candidate to convey Honor again into the market.
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