Huawei announced the sale of Honor brand in November 2020 with the hope to unburden the newco from the US sanction. Now, four months after the announcement, the deal has completed officially.

In the past four months, Honor managed to transfer 8000 employees (including 4000 R&D staff) from Huawei, launch two new smartphone devices Honor V40 and V40 lite, establish the partnership with key suppliers (including Qualcomm and MTK on 5G chipsets). These are encouraging moves for the new company. In a recent media interview, Honor further discussed its strategy forward, including:

• Launch new flagship smartphones (Honor Magic series and Honor Number series) in the middle of 2021, and tablets and wearables in the second half of this year.
• Invest heavily on R&D: 1bn USD in 2021, and 7%-8% of previous year’s revenue in the future.
• Continue global strategy, with hundreds of overseas staffs from sales team, and build up new R&D centers in Japan and in Europe.

New Honor looks like heading towards the right direction at this moment. In addition, we believe the 8000 ex-Huawei employees are the great assets for new Honor, especially their proved experience in R&D development and in global sales. But changes remain ahead, considering the intensified competition from Chinese Android vendors and the supply constraints of key components in the industry. Honor needs to ramp up volumes and regain confidence from both consumers and suppliers as soon as possible.

To reach the goal, we recommend Honor carefully evaluate its pricing strategy of upcoming flagship devices. Previously launched V40 and V40 lite posted mixed performance due to the higher-pricing position. Building up brand equity takes time, and good price-to-performance ratio is still part of current Honor image perceived by consumers, which we recommend the company to keep. We also recommend the company to carefully manage the partnership with suppliers and minimize the risks on component shortage. If Honor can manage these risks well, we expect Honor would be able to come back in domestic market in the second half of this year.

For overseas markets however question mark remains. The biggest uncertainty is the availability of Google Mobile Services which is critical for Honor’s success outside China. Now it is pending to Google and US government, whether it will grant license / permission to the new company. Without GMS, while Honor might be able to keep the presence in Russia where localized app ecosystem is popular, the outlook for Western Europe and other overseas market remains cloudy.