Huawei is reportedly close to selling its Honor smartphone business

A new report from Reuters claims Huawei is currently in talks with Digital China Group to sell parts of its Honor sub-brand. The deal is likely to fetch Huawei close to 25 billion yuan ($3.7 billion).

According to people familiar with the matter, Huawei is no longer keen on the budget smartphone segment. The Honor sub-brand, which was launched in 2013, is mainly targeted at value-conscious consumers. Since Huawei's smartphone business has been severely impacted by the recent U.S. sanctions in markets outside China, the company now wants to focus on higher-end devices instead.

Even though the assets that will be sold haven't been finalized yet, Huawei is likely to sell Honor's brand, R&D capabilities, as well as the supply chain management business. Digital China, which is said to be the frontrunner, is currently the main distributor for Honor devices. Aside from Digital China, other Chinese tech companies like TCL and Xiaomi are said to be in the running as well.

TF International Securities analyst Ming-Chi Kuo believes that a potential sale of the Honor smartphone business could be a win-win situation for the brand, as well as the Chinese electronics industry. Kuo wrote in a recent research note:

If Honor is independent from Huawei, its purchase of components will no longer be subject to the U.S. ban on Huawei. This will help Honor's smartphone business and the suppliers.

Honor posted less than 5 billion yuan in net profit last year, due to the wafer-thin margins in the budget phone market globally.