Huawei Sells Honor Unit ‘To Ensure Its Own Survival,’ But Loses Smartphone Synergy

Huawei, the Chinese telecom giant once ranked as the world’s largest smartphone maker and increasingly squeezed by Washington, announced Tuesday that it would sell its budget handset brand Honor to a government-backed consortium in a bid for the unit’s survival.

Huawei has been struggling to overcome restrictions on crucial chip technologies by the U.S., which calls the company a national security threat. By breaking off, Honor can get smartphone supplies without Washington’s blockade, but will lose access to Huawei’s resources and may even face new U.S. restrictions in the longer term, analysts warn.

“This move has been made by Honor’s industry chain to ensure its own survival,” Huawei said in a statement. “Huawei’s consumer business has been under tremendous pressure as of late. This has been due to a persistent unavailability of technical elements needed for our mobile phone business.”

PROMOTED Grads of Life BrandVoice | Paid Program Disrupting Economic And Racial Inequity With Three Practical Steps Deloitte BrandVoice | Paid Program An Accelerated Future For Tax Leaders Civic Nation BrandVoice | Paid Program The Next 5 Years

Shenzhen Zhixin New Information Technology is set to buy all Honor assets to “help Honor’s channel sellers and suppliers make it through this difficult time,” according to the statement. The buyer comprises more than 30 “agents and dealers” of the Honor brand.

Government-run Shenzhen Smart City Technology Development Group founded the consortium. It counts local government-linked energy, healthcare and investment firms as members. Chinese sports, retail and entertainment conglomerate Suning.com Group, one of China’s largest private companies, is also on the list. MORE FOR YOUVietnamese Mega-Conglomerate Vingroup Launches South China Sea Tourism With New SubmarineTop iPhone Assembler Foxconn Expects To Move Further Away From ChinaVietnam’s Richest Man Sees Interim Earnings Drop 60% As His Conglomerate Retreats From Retail

Shenzhen Smart City Technology Development said in its own statement the investment is “market-driven” one aimed at saving Honor’s “industry chain,” including suppliers, sellers and consumers.

The sale will let Honor “get the ball rolling” on getting supplies, says Kiranjeet Kaur, a Singapore-based senior research manager at IDC’s Asia Pacific client devices group. But it will miss the “synergy” it had established behind the scenes with Huawei, she notes. The two had shared R&D and original design manufacturing. “I’m not sure how easy it’s going to be for Honor to detach from that,” Kaur says. “I’m not sure how Honor is going to differentiate in the market from Huawei.”

The consortium’s state influence could land Honor in trouble if it wants approval from the U.S., Kaur adds.

“The fact that there is no strategic investor behind the deal, but rather a consortium of players, many of which are related to the government, sheds light on some of the deal rationale,” says Alexander Sirakov, an independent Chinese financial technology analyst.

Huawei has hoped that a sale will give it an infusion of cash while protecting Honor itself from more U.S. sanctions, experts said last week when news first broke about a possible sale. Huawei’s billionaire founder and CEO, Ren Zhengfei, had said last year that U.S. sanctions would cause company revenue to drop by billions of dollars.

Last year, the U.S. Department of Commerce added Huawei to an entity list of companies that are barred from doing business with organization in the U.S. An order that took effect two months ago placed 38 Huawei affiliates to the list and restricts transactions where U.S. software or technology would help develop the Chinese company’s hardware.

U.S. President-elect Joe Biden is not expected to cancel action against Huawei at the start of his term next year as he focuses on domestic issues, analysts said last week, but he might not add sanctions.

Huawei’s statement does not disclose a selling price or mention the U.S. sanctions.

Honor was launched in 2013 as a budget brand to compete with Chinese rivals and sold throughout developing markets in Asia at an average price of $156. Honor has kept costs low and saved money by selling most of its phones online. Huawei would ship more than 70 million Honor phones annually. “We hope this new Honor company will embark on a new road of honor with its shareholders, partners, and employees,” the Huawei statement says.

Huawei was ranked No. 2 in the world and No. 1 in China in the third quarter by IDC. It had reached the top spot in the previous quarter for its first time.Follow me on Twitter

Ralph Jennings

Ralph Jennings

As a news reporter I have covered some of everything since 1988, from my alma mater U.C. Berkeley to the Great Hall of the People in Beijing where I followed Communist officials for the Japanese news agency Kyodo. Stationed in Taipei since 2006, I track Taiwanese companies and local economic trends that resonate offshore. At Reuters through 2010, I looked intensely at the island’s awkward relations with China. More recently, I’ve studied high-tech trends in greater China and expanded my overall news coverage to surrounding Asia.

.

.

CGTN

For more: https://www.cgtn.com/video

Chinese tech giant #Huawei has announced it’s selling its budget, youth-oriented smartphone brand Honor to another Chinese company. The move is seen as helping it ride out challenges posed by U.S. sanctions. #5G#China Subscribe to us on YouTube: https://goo.gl/lP12gA Download our APP on Apple Store (iOS): https://itunes.apple.com/us/app/cctvn… Download our APP on Google Play (Android): https://play.google.com/store/apps/de…

A Scary Number of Retail Companies are Facing Bankruptcy Amid the Coronavirus Pandemic

The sign outside the J.C. Penney store is seen in Westminster, Colorado February 20, 2009. Department store operator J.C. Penney Co Inc posted a 51 percent drop in fourth quarter profit on Friday, and said its loss in the current quarter would be deeper than Wall Street estimates as shoppers hold off on spending. REUTERS/Rick Wilking (UNITED STATES) – GM1E52L0AQI01

The retail death march persists. Somewhat under-the-radar, Italian luxury goods retailer Furla filed for Chapter 11 on Friday after being hit hard from the COVID-19 pandemic. The company is looking to close stores and cut debt as part of the reorganization. The retailer, founded in 1927, plans to emerge from bankruptcy with a greater focus on e-commerce.

Furla joins a long list of well-known retailers that have buckled during the health crisis.

My Portfolio >All index data provided on a 15 minute delay.Powered by

New York City-based department store chain Century 21 filed for bankruptcy in September and said that it will shut 13 locations that for years served up deep discounts on designer wares. The company pinned the blame on the COVID-19 pandemic and uncooperative insurers who were supposed to help provide the company with fiscal support during tough times.

Bankrupt J.C. Penney, meanwhile, received a bailout in September from landlords Simon Property Group and Brookfield. The consortium valued the century old department store — which went bust back in May — at some $1.75 billion. A total of 650 stores will stay open, down from the more than 1,000 pre-pandemic.

“It takes a long time to kill a retailer,” Forrester retail analyst Sucharita Kodali told Yahoo Finance Live “So as long as they are able to pay their bills, which if they have an owner they will — they can absolutely be around. But that doesn’t mean death for J.C. Penney is totally off the table.”

Kodali added that J.C. Penney “may not be a great customer experience, but at least it’s alive and open. They can figure out what the plan B over five to ten years could be for that space.”

‘That’s a scary number’

States have allowed malls and retailers to reopen, but the situation remains precarious as COVID-19 infections are now back on the rise. Consequently, it’s reasonable to expect malls and stores are shutdown — or shopping times restricted —again before year end. That will raise the prospect of a fresh wave of bankruptcies in early 2021 after what could be a lackluster holiday shopping season.

“I think many of these companies will file [for bankruptcy], and it’s not a handful. It’s several dozen. And that’s a scary number,” Stifel managing director Michael Kollender, who leads the consumer and retail investment banking group for the firm, told Yahoo Finance. “It’s far more than we have seen over the last several years combined.”

Kollender and his colleague James Doak at Miller Buckfire — Stifel’s restructuring arm, where Doak is co-head — have worked on dozens of consumer and retail bankruptcies in recent years, including Aeropostale, Gymboree and Things Remembered.

“We will see some major chains go away and not come back,” Kollender added. “These are chains that were struggling before the situation. COVID-19 will put them over the ledge.”

The pandemic has toppled several household names this year. Stein Mart, a 112-year-old discounter, filed for bankruptcy in early August and will look to close most of its nearly 300 stores. The company cited significant financial stress brought on by the COVID-19 pandemic for its decision.

August also saw Lord & Taylor — the oldest U.S. department store founded in 1826 — file for Chapter 11 bankruptcy protection after being crippled by COVID-19 store closures. The company was purchased for $100 million from Hudson’s Bay by fashion startup Le Tote in 2019. Le Tote also filed for Chapter 11.

Men’s Wearhouse-owned Tailored Brands also filed for Chapter 11 in August, too. The company said it had received $500 million in debtor-in-possession financing from existing lenders.

Meantime, Ascena Retail Group, the owner of Ann Taylor and Lane Bryant, finally filed for bankruptcy protection in late July. The company, which has been circling the bowl for years, will look to the courts to help it shave $1 billion in debt. But it’s likely the retailer will be far slimmer post bankruptcy than its current 2,800 store count.

AdChoices

Regional retailer Paper Store filed for Chapter 11 in July as well. The operator of 86 stationary and card stores in the Northeast said it’s looking for a buyer.

New York & Co. parent company RTW Retailwinds also filed for Chapter 11 bankruptcy protection in July after years of growing irrelevance in malls. The women’s apparel company — which changed its name to the bizarre RTW Retailwinds as part of a rebranding in 2018 — operates 378 outlet and and mall-based stores across 32 states. It may close all of its stores as part of the filing.

“The combined effects of a challenging retail environment coupled with the impact of the Coronavirus (COVID-19) pandemic have caused significant financial distress on our business, and we expect it to continue to do so in the future. As a result, we believe that a restructuring of our liabilities and a potential sale of the business or portions of the business is the best path forward to unlock value. I would like to thank all of our associates, customers, and business partners for their dedication and continued support through these unprecedented times,” said RTW Retailwinds CEO Sheamus Toal in a statement.

And the list of now defunct retailers is almost endless.

Brooks Brothers filed for bankruptcy in July. It has been dealt a twin blow to its finance from closed malls and a shift away from preppy clothing. The company would up being sold to the duo of Authentic Brands Group and Simon Property Group for $325 million.

GNC has walked through death’s door after knocking on it for years. The 85-year-old vitamin seller filed for bankruptcy in late June after years of battling waning sales and a debt load north of $1 billion. GNC plans to shutter up to 1,200 stores across the U.S. The company operates more than 5,800 stores.

NEW YORK, NEW YORK - AUGUST 07:  A person wears a protective face mask outside the GNC store as the city continues Phase 4 of re-opening following restrictions imposed to slow the spread of coronavirus on August 7, 2020 in New York City. The fourth phase allows outdoor arts and entertainment, sporting events without fans and media production. (Photo by Noam Galai/Getty Images)
A person wears a protective face mask outside the GNC store as the city continues Phase 4 of re-opening following restrictions imposed to slow the spread of coronavirus on August 7, 2020 in New York City. (Photo: Noam Galai/Getty Images)

“Some companies are just not going to survive this,” says McGrail, who is the COO of one of the world’s largest asset disposition and valuation firms, Tiger Capital Group. Its McGrail’s team — which often includes store associates of a stricken retailer — that hangs the “Everything must go” signs and works to fetch top dollar on fixtures and other inventory.

Such is the current life for McGrail and others in the retail bankruptcy and restructuring fields. In talking to a host of experts, one thing is abundantly clear: more retail bankruptcies are very likely over the next twelve months.

Even for those retailers emerging from bankruptcy, vendors are likely to be tepid to ship them product while at the same time tightening payment terms as the pandemic rages on.

That one-two punch usually kills a wounded retailer for good.

Then there is the general uncertainty on how people will view going back to the mall in the new normal of social distancing. That fog of war is poised to persist well beyond the coming holiday season.

“We are in a retail tsunami,” Kollender said.

This story was originally published on June 24, 2020, and has been updated.

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

What’s hot from Sozzi:

Watch Yahoo Finance’s live programming on Verizon FIOS channel 604, Apple TV, Amazon Fire TV, Roku, Samsung TV, Pluto TV, and YouTube. Online catch Yahoo Finance on Twitter, Facebook, Instagram, Flipboard, SmartNews, LinkedIn, and reddit.Tags

More From Yahoo Finance: