Owing to the shipment restrictions imposed by the U.S. government, Huawei announced on November 17 that it will sell its subsidiary Honor, including all business units and assets, in order to protect Honor’s brand equity and the livelihood of its employees, according to TrendForce’s latest investigations. Despite the change of ownership, however, “new Honor” still has to cope with the shortage of foundry capacity in 2021, leading to a forecasted market share of 2%, while Huawei’s market share is expected to reach 4%. It should be pointed out that Apple is expected to capture some demand that was previously aimed at Huawei’s high-end smartphones. At the same time, Huawei’s Chinese competitors Xiaomi, OPPO, and Vivo are expected to ramp up device production. Hence, the volume of new smartphones coming from these sources will exceed the estimated market share gap left by Huawei. Also, if the smartphone market does not have sufficient demand to accommodate the overly inflated production plans in 2021, then brands may have to readjust their production targets.

Huawei had been adopting a coopetition strategy with Honor, which comprised of resource sharing and independent operation, and the latter is expected to return swiftly to the smartphone market through cooperation with channels under its preexisting model of independent operation. However, U.S. sanctions remain as the most pressing concern for new Honor, as they affect its component procurement, R&D, product design, and GMS (Google Mobile Services) integration. Whether new Honor will be free to undertake these activities due to its split from Huawei remains to be seen. Assuming new Honor is unaffected by U.S. sanctions against Huawei, TrendForce provides the following four analyses regarding the smartphone market.

  1. Apart from political factors, the shortage in foundry capacities poses the greatest challenge to new Honor, as wafer capacities for AP chip bundles, including PMICs and display driver ICs, are in short supply across the foundry industry. New Honor may therefore not receive a relatively stable flow of material supply until 2H21.
  2. Honor had historically focused on the young consumer demographic, with a significant share of sales coming from online channels. As such, there was considerable overlap between the target demographic of Honor and that of Xiaomi, and the reemergence of new Honor in the smartphone market will impact Xiaomi to a greater extent than it does OPPO and Vivo. However, the degree of impact will partially depend on whether new Honor can integrate GMS into its devices in order to expand its competitiveness in the overseas market.
  3. As long as sanctions against Huawei are in place, new Honor will be unable to make use of HiSilicon’s in-house chips. Whether Honor as a newly independent entity can regain its former market share without the advantage of using in-house chips is something that requires further observation. Moreover, the scale of procurement that the new Honor can leverage will shrink along with its size. This will have an adverse effect on the overall production cost. The new management team will therefore be tested in developing a response strategy to enhance profitability and control costs.
  4. Although new Honor is expected to be just as aggressive after the divestment, the market share given up by Huawei will entice Xiaomi, OPPO, and Vivo to maintain their aggressive strategies. Since all four brands are expected to set high production targets, the entire smartphone supply chain may experience tight supply in 1Q21. Prices may increase for certain components even in the traditional off-season.