US media says Huawei will license mobile phone designs to third parties to avoid export controls

On November 15, Bloomberg reported, citing people familiar with the matter, that Huawei's smartphone business has been hit hard by US sanctions, and the company is currently planning to license its mobile phone designs to third parties to allow them to obtain key components to manufacture mobile phones based on Huawei's designs.

Observer.com contacted Huawei regarding this matter, but the other party has not responded yet.

Screenshot of Bloomberg report

Huawei is considering licensing its phone designs to a unit of state-controlled China Post and Telecommunications Appliance Group Co Ltd (PTAC), which would then seek to buy components subject to U.S. export controls, said a person familiar with the matter, who asked not to be identified discussing private matters.

The subsidiary, called Xnova, already sells Huawei-branded Nova phones on its e-commerce website, and will later offer its own-brand phones based on Huawei designs under the partnership, the report said.

Guancha.com noticed that the Weibo account @Hinova had been registered and certified in August this year, and the certifier was China Post Telecommunications Equipment Co., Ltd. China Post Telecommunications Equipment Co., Ltd. is a wholly-owned subsidiary of China Post and Telecommunications Equipment Group Co., Ltd., which had previously participated in the joint acquisition of Honor.

Weibo screenshot

Another person familiar with the matter cited by Bloomberg also noted that Chinese telecom equipment maker TD Tech Ltd. will also sell some Huawei-designed phones under its own brand. The partnership could change as negotiations are ongoing.

It is worth noting that TD Tech has recently launched a mobile phone called "TD Tech N8 Pro", which is very similar to Huawei nova 8 Pro in appearance and is also equipped with Huawei's self-developed Kirin 985 5G chip. There are also rumors that TD Tech plans to launch a flagship phone with the same appearance as Huawei Mate 40. This product may be named "M40" and equipped with Kirin 9000E 5G chip.

Screenshot of TD Tech's official website

Guancha.com checked the information of Qichacha and found that TD Tech was established in 2005. Its chairman is Markus Peter Rodolfo Botze (Ma Botze), who is also the president of Nokia Greater China and CEO of Shanghai Nokia Bell. In addition, the list of directors of TD Tech also includes Xu Zhijun, Deng Biao, He Haipeng, Yan Lida and many other people related to Huawei. Further inquiry shows that the 100% controlling shareholder of TD Tech is TD TECH HOLDING LIMITED, a Hong Kong-registered company, which is jointly held by Nokia (51%) and Huawei (49%).

Qichacha screenshot

Bloomberg reported that selling phone design licenses could be Huawei’s best chance to save its smartphone business after U.S. sanctions cut off its supply of key chips. Huawei’s consumer business has seen sales decline for four consecutive quarters since it was first cracked down on by the U.S. government.

The financial report shows that in the first half of 2021, Huawei achieved revenue of 320.4 billion yuan and a net profit margin of 9.8%. Among them, the consumer business fell 47% year-on-year to 135.7 billion yuan; the operator business fell 14.2% year-on-year to 136.9 billion yuan; the enterprise business increased by 18.2% year-on-year to 42.9 billion yuan. Except for the enterprise business, which still maintained positive growth, Huawei's consumer business and operator business both showed negative growth.

Data from market research firm Counterpoint Research shows that in the third quarter of this year, Huawei's domestic shipments fell sharply by 77% year-on-year and 18% month-on-month. Its market share has dropped from 30% in the same period last year to only 8%. This shows the huge impact of US sanctions on Huawei's mobile phone business.

Image source: Counterpoint Research

About a year after Huawei spun off its Honor sub-brand, Honor CEO Zhao Ming said the company can now buy components from U.S. suppliers, including Qualcomm.

Bloomberg cited a person familiar with the matter as saying that Huawei engineers have begun redesigning the circuits of some smartphones to adapt them to Qualcomm or MediaTek processors. The person also said that Huawei expects the partnership to increase smartphone shipments to more than 30 million units next year, including internal models and models sold by partners.

The report believes that the latest licensing agreement is unlikely to bring substantial profits to Huawei, but the partnership may be crucial in helping the company maintain its smartphone development capabilities.