Huawei sold Honor, which accounted for ~40% of its smartphone sales in 2018 and about a quarter in 2019.
And this is also a complete sale: Huawei “ will not hold any shares or be involved in Honor’s future business management or decision-making activities after its sale”.
This is no doubt a disruption to Huawei’s consumer business strategy.
After briefly overtaking Samsung as the #1 smartphone company in the world in the second quarter this year, Huawei managed to maintain the #2 spot for now.
Without Honor, Huawei might need to struggle to keep its current spot.
However, this is a “strategic” move.
With US sanctions, Huawei cannot secure enough components to support both Huawei and Honor brands.
So the “strategic” move to let go of one will not only allow Huawei to focus its existing resources on building the other brand, but also gives Huawei additional resources (the sales proceeds) to push forward in other key areas, like 5G tech and chips.
So which one to let go?
Apparently, it cannot be Huawei.
Huawei brand represents the best that Huawei can offer in the consumer product domain, especially the Mate series. It is the image of Huawei in the consumer product domain.
So Honor was sold.
Hopefully, Honor will be able to bypass the sanctions after the sale and secure supplies of components to continue its business, though its future is not without challenges.
Up until here, I think everything is “normal and expected”. At least, it did not surprise me in any way.
However, what was surprising was who Honor was sold to.
Huawei had options.
It could be existing smartphone players, aka direct competitors, such as Xiaomi, Vivo, OnePlus etc. To Huawei, probably not a good idea.
It could be other hardware manufacturers who have not-doing-so-well smartphone businesses, such as Lenovo. For Huawei, this could be a better choice than the first one.
It could also be some cash-rich companies or investors who want to enter smartphone business. It may sound impossible. Who wants to enter this “red ocean” now? But bear in mind that Honor has value, which will attract investments.
I am sure there were other options.
But I think Huawei picked the best option possible, which is a win for “Dedication”.
Before we discuss further, let me explain a bit what I mean by “Dedication”.
In the book “skin in the game” by Nassim Nicholas Taleb, it is highlighted that the mismatch between decision power and responsibilities can lead to irresponsibly risky decision and disastrous consequences.
Then who should be given the decision power to ensure generally good decisions?
One theory compares “Dedicated” contributors and “General” contributors.
- “Dedicated” contributors: people whose skills/assets are highly specialized and dedicated to a certain organization. They wont find much use for their skills/assets outside of the organization. Examples include specialized experts, owners of the business etc
- “General” contributors: people whose skills/assets are transferrable. They can find buyers for their skills/assets in a wide range of organizations and industries. Examples include management, Admin etc. Contrary to our common belief, shareholders are also included in this category as shares can be transferred easily in the stock market.
Obviously, “Dedicated” contributors have higher motivation to improve the organization because their welfare are closed related to the organization, and therefore the decision power should reside with them.
Going back to the Honor sale, the buyer was Shenzhen Zhixin New Information Technology, a consortium of over 30 agents and dealers for Honor Brand, founded by Shenzhen Smart City Technology Development Group.
In other words, Honor is bought by the “Industrial Chain” that Honor belongs to, with the back-up of the government.
The agents and dealers, some of which I have served as a consultant, have heavy stakes in Honor that cannot be easily transferred, which make them “Dedicated” contributors to Honor.
So, the fate of Honor will be determined by the “Dedicated” contributors to Honor, which grants a higher chance of responsible decisions and better growth.
In conclusion, Honor was “satisfied” by Huawei to cope with the sanctions for the greater good.
However, this could also be an opportunity for Honor. At least, Honor is in the hands of “Dedicated” contributors, with the back-up of the government.
Wish Huawei and Honor both well!
