Hey.

In May 2019, sanctions were imposed against Huawei and all subsidiaries of the United States, their number increased quarterly, the Chinese manufacturer was cut off from technology in stages. Companies were banned from working with American suppliers, and this concerned both Google (read – Android) and suppliers of any technological solutions, for example, processor manufacturers. Being on a starvation diet, Huawei dropped its share of the smartphone market, as it was not able to produce devices, its pre-made stocks of components were depleted in several quarters. In November 2020, the decision was made to sell Honor, a subsidiary of Huawei, which originally emerged as a brand of smartphones and accessories for online sales. In Russia, it was Honor that reached a noticeable market share and periodically even exceeded Samsung in unit sales, which has been holding first place for many years.

We wrote about the possible sale and the consequences for the company in a separate article, if you wish, you can refresh it in your memory.

In November 2020, the sale took place, the new owner of the company, Shenzhen Zhixin New Information Technology Co., is a consortium of thirty different companies. In order to avoid any accusations of cooperation with Huawei, it was initially decided that the company will stop cooperation in any form, will not use Huawei technologies, and receive support in product development. Huawei employees will not have access to the management of the updated Honor. It was necessary to create a stone wall between Huawei and Honor, which is difficult to imagine, since the companies were originally one whole, often shared the same offices, had access to a single information system. And the development itself was also carried out in the same laboratories, the model line from Honor has always been simplified and cheaper versions of smartphones from Huawei, some did not exist in isolation from others.

The plan to transfer Honor to other hands existed long before the announcement of the company’s sale in late 2020. Already in the middle of 2020, a wall of silence was erected in Russia between Huawei and Honor employees, each brand was positioned as independent, employees who faced in cafes and canteens tried to impose a model of behavior in which they could not communicate with each other. And even more so, they could not share what is happening with them in the aspect of work. This has always caused a smile and rejection by many of this approach, but the goal, as we can see, was to divide the companies, to separate them as much as possible among themselves.

Of course, for an outside observer, the Honor brand has always been associated with the parent company. On the other hand, many buyers simply did not know this, they considered Huawei and Honor to be different manufacturers, but for those who knew a little about the market, their connection was self-evident in every aspect.

The official selling price of Honor is unknown, Reuters indicates the amount of 15 billion dollars, it looks adequate. A sufficient number of employees moved from Huawei to Honor, before the sale of the company, there was a division into two camps, someone chose Huawei, someone went to a new company. This did not happen by order, employees always had a choice, which they carried out.

What happened next? After the sale, the already independent Honor tried to get out of the US sanctions, the company turned to the US Department of Commerce with a request to withdraw it from the sanctions. The new administration of the White House gave hope that this could happen, in any case, the weakened company, deprived of resources and market share, would not be viewed as a threat. See how market share has fallen for Huawei / Honor smartphones, data from Counterpoint Research.

In fact, the United States destroyed the largest player in the smartphone market, and a player who created his own processors on ARM-architecture. Honor’s share has become negligible, as since the second half of 2020, the company did not have new models to support sales, shipments fell sharply, as did retail sales. This is clearly seen on the example of the Russian market, it has always been important for Honor.

The optimistic forecasts were that the sanctions could be lifted in February-March, which would allow a new model range to be released in the spring. But this did not happen, I get the feeling that American officials deliberately delayed the process in order to give Honor to feel the gravity of the situation. And it was unbearably difficult without any discounts, since the company retained its entire staff, but sales fell sharply. Unlike Huawei, Honor lacks a business infrastructure, and in fact there was nowhere to take the money, only from the pocket of investors. Rumors claim that investors are receiving money directly from the Chinese government, and this pocket is bottomless, so Honor could wait for years to resolve the situation. But I doubt that this is really true in full. Imagine hundreds of specialists of various levels who work only in the Moscow office, these are people with very different salaries, but they all received them, while there was no job. Sales managers phoned customers on duty and promised that everything would be fine soon. In a matter of hours, logisticians scattered a meager amount of supplies of accessories and then just watched TV shows and read books. Huge money went nowhere, the company operated at a loss, however, this situation persists even now, until an updated lineup appeared. Globally, everything is exactly the same, there are no exceptions, as well as supporting business processes. If this situation persisted until September 2021, we would see the closure of Honor, since there simply would be no reason to keep it afloat.

In the first months of 2021, US officials demanded copies of computers, as well as full access to Honor’s corporate network, an unprecedented act on the part of any state. The reason for scrutinizing the information on the Honor network was to look for any connections with Huawei, any hidden relationships. For you to understand the level of transparency, I note that this is full access to technologies (and they are one for two – the same in Huawei and Honor). Honor went for it to avoid sanctions.

There have been no official announcements that the US has lifted sanctions on Honor, but the President of Honor spoke at the Qualcomm Summit in China on May 21, 2021! Here is the full text of the press release dedicated to this event:

Dear colleagues,

We would like to share with you information about the strategic partnership of HONOR with the American company Qualcomm: the latest Snapdragon 778G processor will be introduced into the future flagship line of HONOR 50 smartphones.

“As a global technology brand, HONOR has built the strongest partner chain among industry leaders across the supply chain, and our relationship with Qualcomm further reinforces our commitment to working with global technology leaders. – shared George Zhao, President of HONOR, at Qualcomm China Tech Day 2021. – A number of technologies developed internally by HONOR are now embedded in the powerful Snapdragon platform. We believe that this cooperation will help unleash the maximum potential of the product, because our main goal is to provide our users with the highest quality devices and services. “

This strategic partnership with Qualcomm underlines HONOR’s commitment to fully embrace the global supply chain to create a new era of innovation. To continuously improve the process of design and development of processors, HONOR works closely with its partners: companies exchange knowledge about user needs, product development philosophy. With access to cutting-edge technology, HONOR is integrating its unique technology solutions into new platforms to create sustainable collaboration between companies.

The flagship HONOR 50 series of smartphones will be the industry leading product with the powerful Snapdragon 778G mobile platform, revolutionary technology stack and aesthetic design. In addition, the HONOR Magic series – the upcoming premium flagship product – will use Qualcomm’s most premium chipset to unleash innovative imaging capabilities.

HONOR as a global technology brand strives to create a new smart world for everyone. We will continue to work closely with global industry leaders to provide our customers with only the most advanced solutions.

Yours faithfully,
HONOR company

What did this announcement mean? A simple thing – the US sanctions against Honor are no longer in effect, permission to work with the company has been received, and now American corporations will begin supplying components, software and technologies to this “newcomer”.

Since Honor is the loser in this whole situation, breaking away from big Huawei, the restrictions imposed on the company are significantly greater than on any independent player in the market. Honor itself will not tell you anything about this, none of the American officials will admit it, but here are the working conditions for the updated Honor brand.

Full transparency before the US Department of Commerce, the ability to conduct an independent audit and check corporate systems for the transfer of certain information to Huawei. In fact, we are talking about the fact that the American government wants to maintain control over Honor for a while, completely owning information from within the company. The stretch procedure can be called standard, but for the controlling side, it is good and pleasant. This means that the US has full access to all Honor developments, corporate secrets and the like.

Another point is the choice of suppliers of key components, for example, processors. For several years, Honor must agree on the choice of suppliers, that is, obtain permission to work with certain companies, the same Huawei cannot act as such a supplier. This means that American officials want to create a guaranteed sales market for American corporations, to compensate them for the losses from the destroyed Huawei sales that happened in 2020.

Other restrictions look like “little things”, although, in fact, are the pen that Honor was placed in. Any action that potentially dislikes US officials could result in the company being challenged and forced to pay the bills, both literally and figuratively. It sounds sad, but this is life, and there is nothing you can do about it.

Honor is technically free about what to do and how to behave. In fact, the company will be under the external control of America for some time, officials can direct the development of Honor in one direction or another, and most importantly – have full access to everything that happens inside the company. This is an excellent intelligence resource for America, since you can indirectly get access to commercial developments of third companies, to those who interact with Honor. The latter may not even guess that such control and collection of information is being carried out. In Russia, the refurbished company Honor will not be able to participate in government tenders for critical infrastructure, while Huawei retains access to such tenders. This describes how a renewed company is seen in Russia; in each market, the regulator will make such decisions independently.

But we are interested in what will happen to the lineup, what it will become and how quickly it will appear on the market. I think that it would be adequate to talk about the supply of new models in late July – early August, before the autumn season. The updated chipsets from Qualcomm will appear for manufacturers in the second half of June – early July, at the same time production will begin. At the same time, we are also seeing the release of a new version of Android, which, most likely, will want to be used in Honor. Initially, EMUI as a single shell for Huawei / Honor will be present on such devices, but, perhaps, it will become easier, as developments in the field of interface will change, Honor will go their own way. There is a complete lack of clarity, since at the moment no devices exist, you cannot touch the final versions. As well as the roadmap of models, there are pictures describing the characteristics, but they do not have anything about the interface and its capabilities. I won’t be surprised if a decision is made to make a new line on pure Android with minimal changes (as they did in the same HMD Global, Nokia brand).

The cost of the models remains an open question, but given the ambitions of Honor, we can say that the company will try to sell these devices for minimal money, virtually no mark-up. For Honor, it is important not to miss the moment, while the brand is heard, to win back its customers. And here any marketing costs are justified. This means that we will see pressure from Honor on Xiaomi, Samsung and Chinese manufacturers, for example, on the same Realme. This will eventually trigger a price war, and the margins for all players will drop dramatically. In Russia, Honor has current sales at the level of 2% in piece terms; with an aggressive pricing policy, the company will be able to return to the level of 5-7% and maintain a growing trend. But the investment in return must be visible. The fact that Honor has money does not raise any questions, let me remind you about the maintenance of the staff, who did almost nothing for half a year and received their salaries in full. The return of Honor will suffer Xiaomi, the company has benefited more than others from the departure of Huawei / Honor, it was perceived as a replacement for these brands. Now part of the sales will have to be given back.

For the market, the return of a strong player is good news. How much Honor outside Huawei can remain a strong player is a question – the same team, but different opportunities, lack of synergy with the parent company and political risks that have arisen. However, this is not a brand that emerged from scratch and has a long way to go. Many people are overjoyed at the return of Honor, which means sales will be noticeable. What do you think of the return of the company and how much do you miss it?