(Reuters) – China’s Huawei Technologies Co Ltd is in an early phase of talks to sell its premium smartphone brands P and Mate, two people with direct knowledge of the matter said, a move that could lead the company to end smartphone leaves business.
Talks between the world’s largest telecommunications equipment manufacturer and a consortium led by government-backed Shanghai investment companies have been going on for months, the people said, refusing to be identified because the discussions were confidential.
Huawei has already started internally investigating the possibility of selling the brands in September, according to one of the sources. The two sources were unaware of Huawei’s rating of the brands.
Shipments of Mate and P series phones were worth $ 39.7 billion between Q3 2019 and Q3 2020, according to consulting firm IDC.
However, Huawei has yet to make a final decision on the sale and the talks may not be concluded successfully, according to the two sources as the company is still trying to produce its in-house designed high-end Kirin chips at home that its smartphones.
“Huawei has learned that there are unfounded rumors about the potential sale of our flagship smartphone brands,” said a Huawei spokesperson. “These rumors have no merit. Huawei has no such plan. “
The Shanghai government said it was not aware of the situation and declined to comment further.
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 mind about the supply chain restrictions imposed on Huawei since May 2019, the two people said.
Shanghai’s government-backed investment firms may form a consortium with Huawei’s dealers to acquire the P and Mate brands, according to the second person, a similar model to the Honor deal. Huawei will also likely keep its existing P & Mate management team for the new entity if the deal goes through, the two people said.
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Huawei, the world’s largest telecom equipment supplier and No. 2 smartphone maker, last November announced the sale of its low-cost phone brand Honor to a consortium of 30 dealers led by a company backed by the Shenzhen government.
The second source said the cash sales raised more than 100 billion yuan ($ 15.5 billion). Honor declined to comment.
The Honor sale was intended to keep the budget brand alive, as sanctions imposed on Huawei by the United States had hampered the unit’s supply chain and the company’s access to key hardware such as chips and software, such as Google Mobile Services Alphabet Inc.
Huawei may have a similar goal in pursuing the sale of the mobile brands. The two sources said Huawei’s latest plans for the two high-end brands were motivated by insufficient chip stocks.
Washington says Huawei is a threat to national security, which Huawei has repeatedly denied.
On Friday, Honor said the spin-off’s goal had been met by announcing that it had partnered with chip makers such as Intel and Qualcomm and launched a new phone.
Last year, Consumer Business Group Chief Executive Richard Yu said Huawei would soon stop making Kirin chips due to US restrictions. Analysts expect the supply of 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 outsources production to Taiwan Semiconductor Manufacturing Co (TSMC), which uses equipment from US companies.
The P and Mate phone series are among the top players in the more expensive smartphone market in China, competing with Apple’s iPhone, Xiaomi Corp’s Mi and Mix series and OPPO’s Find series.
According to market research firm Counterpoint, the two brands contributed nearly 40% of Huawei’s total sales in the third quarter of 2020.
Analysts have already found that recently there have been insufficient deliveries of the flagship P40 and Mate40 series due to a serious shortage of components.
“We expect a continued decline in P and Mate series smartphone sales through the first quarter of 2021,” said Flora Tang, analyst at Counterpoint.
Reporting by Julie Zhu, Yingzhi Yang and David Kirton, additional reporting by Brenda Goh; Adaptation by Sumeet Chatterjee & Shri Navaratnam