• Successful spin-out from Huawei will go public as next step in its development
• No date or exchange details provided but it will be in China
• Ostensibly independent but strong links to the state are intact

Shenzhen, China-based smartphone vendor Honor has announced that it will work towards an IPO (initial public offering) and float shares on a public exchange in China to fund further expansion. It did not identify a particular exchange (there are three in China) or share a proposed timetable, but the announcement came three years to the month after the company was spun-out from Huawei Technologies (November 2020) and thus just in time to meet the pledge, made at the time, that if all went well, it would float in 2023.

In a recent statement, the company said its “market position has improved greatly” since its foundation and that “an IPO would be the next step in Honor’s continuing development.” In the same announcement, Wu Hui, who until last month had been the chairman of the Shenzhen Water and Environment Group, was named as Honor’s new chairman.

Honor has become a success very quickly and commanded a market-leading 19.3% of the Chinese smartphone market in the third quarter of this year, when it sold 11.8 million devices in China, according to IDC. It was the second-biggest handset manufacturer in China last year and the fifth-largest mobile handset brand in terms of sales in Europe in the third quarter of this year.

Honor was first established in 2013 as a sub-brand of Huawei but in 2020, as US “Entity List” sanctions hit Huawei hard, Honor was spun out as a separate company and that meant the business could continue to trade with US companies, such as Google and Qualcomm, and could continue to build a business overseas. In November 2020, we reported that Honor handsets “are high-tech, stylish, packed with features, comparatively inexpensive and globally popular (particularly with teenagers and the 18 to 30 years-old demographic)”. In general, they still are, but these days the top-of-the-range models cost well over £1,300.

We also reported three years ago that “Huawei's decision to hive-off Honor should be viewed through the lens of the Communist Party’s Made in China 2025 programme, which has been given additional impetus by the restrictions imposed on Huawei by the US, the UK and other countries. The intent is to move the PRC from its current position and role as ‘the world’s factory’ and to accelerate, enhance and modernise the production of high technology in strategic sectors, such as aerospace, biotech, IT, pharmaceuticals, robotics, semiconductors, smart manufacturing and smart cities and telecoms and to achieve independence from foreign suppliers. The goal is to boost the Chinese-domestic content of core technologies to a minimum of 70% by 2025 and the government has allocated a budget of $1.7tn to the project.” 

We added: “It would be well to remember the words of Colin Powell, the US army general who was Secretary of State from 2001 to 2005 who said, ‘Leaders honor their core values but tend to be flexible in how they execute them’.”  

It’s still worth bearing that in mind. When it was spun out from Huawei, Honor was acquired by Shenzhen Zhixin New Information Technology Co Ltd, a Chinese state-backed conglomerate made up of 30 companies and entities comprising, in part, the government of Shenzhen (Shenzhen was established as China’s first special economic zone back in 1980), Digital China (the largest integrated IT service provider in China and the main distributor of Honor phones), TCL Technology (a multinational electronics conglomerate) and Xiaomi (after Samsung of Korea, Xiaomi is the second-largest manufacturer of smartphones in the world). The all-cash deal was said to be worth US$15bn. Honor may no longer be part of Huawei but its links to the political powers in Beijing remain strong.

Rival to Apple and Samsung at the top-end of the handset market

There is great support in China for a company with the heft, wherewithal and aggression to be a really serious rival to Apple and Samsung at the top of the global handset value tree. It seems that Honor could be setting itself up to be just that. At first, analysts speculated that Honor might try to get back into the limelight by going for an IPO via a reverse takeover of an already public company but, apparently, it has decided to make a full-frontal assault. As an Honor statement puts it, “In order to meet new strategic goals, Honor will continue to optimise its shareholding structure, attract diversified capital, and enter into the capital market through initial public offering.

Honour is a big fish in the Chinese handset market but a comparative minnow elsewhere in the world and it wants to fatten itself by eating its rival’s breakfasts in other markets. It has started by staking a claim to be a world leader in folding-screen technology and, in March, introduced the Honor Magic V2, which by Q3 this year had become the top-selling device in China’s foldable mobile phone space, achieving a market share of 25%. Based on that success, Honor’s shipments of its Magic high-end series increased by 107.5% year on year and 20% month on month.

The cumulative year-on-year growth of the Magic high-end series from the first to the third quarter this year was 30%. An impressive figure, but it is far too early to tell if folding-screen devices (that come with the inherent possibility of being easily damaged in real-world daily usage and then expensive to repair) will ever become consumer favourites, and any company relying solely on a gimmicky handset could easily find themselves trapped in a technological and marketing cul-de-sac. Honor has no intention of doing that, of course, hence the development and availability of other non-folding handsets, such as the Honor Magic 5 Pro, the mid-range Honor 90 and the Honor Magic 5 Lite.

In a post on Weibo, the Chinese blogging platform, Honor’s CEO Zhao Ming, who also wrote this blog to celebrate the company’s third anniversary, waxed lyrical to the point of grandiosity on the company’s plans. He wrote, “We are firmly committed to the development direction of globalisation. Europe is our highland. Building the Honor high-end brand in Europe is the direction of our unswerving investment. China’s glory is not enough, we want to build the world’s glory." OK, OK we get it.

Then he got into eulogising about a physical impossibility, writing, “The world is a big place. Let us run together with our dreams, keep our feet on the ground, and walk out of a vast sea and sky for our unrestricted life!” It probably lost something in translation but I’ll buy a pint and a pork pie for the first person to prove to TelecomTV, in a video, that they have managed to achieve that particular feat.

- Martyn Warwick, Editor in Chief, TelecomTV