Huawei has decided to sell its Honor brand smartphone business unit to a Chinese government-backed consortium, hiving off the entry-level handset arm to ensure the survival of its consumer business amid the US trade ban.

Although it has been reported that Huawei will not hold any shares in Honor and not involve in its decision-decision and management, it remains to be seen if the spun-off unit could access to chip supply needed for its production.

It also remains to be seen if the new Honor could manage to maintain its market share without the support from Huawei in terms of brand resources, supply chain management and economics of scale.

Huawei and Honor together shipped 240 million phones in 2019, trailing only after Samsung Electronics as the world's second largest handset vendor.

While Huawei has never revealed the proportion of Honor-brand phones to its total handset shipments, it is estimated that Honor models account for about 40%, said industry sources, adding Honor may have accounted for 30-40% of Huawei's handset shipments in the domestic market and about 60% in overseas shipments.

The new owner of the Honor brand, Shenzhen Smart City Technology Development Group, said the purchase aims to protect the interest of the brand's sales agents and distributors as well as its supply chain makers, and will also help sidestep the US sanctions after the completion of the deal.

An independent Honor, previously been confined to the development and production of entry-level models, may have the opportunity to roll out new models to tap the high-end smartphone segment, said the sources.

However, the sale of its budget phone brand to a local consortium may not help Huawei, said the sources, as the US sanctions against it is based on concerns of national security associated with its 5G equipment and solutions, and therefore its operations will remain under constraints.

The sale of Honor will also undermine Huawei's set policy to develop its 5G/AIoT ecosystem that will utilize handsets as core devices and expand to include wearables, tablets, display and IoT devices, commented the sources.