Huawei spin-off Honor takes aim at Samsung in foldables; shrugs off U.S. sanction concerns

Honor CEO George Zhao has a simple philosophy — make the best products and the sales numbers for the Chinese smartphone maker will follow.

In a wide-ranging and rare interview with global media, Zhao addressed the company's strategy to compete with the likes of Apple and Samsung and hinted at a new foldable phone ahead.

He also shrugged off concerns that Honor, which was spun off from Huawei, could potentially be hit with the same U.S. sanctions that crippled its former parent company's business.

Honor launched its Magic Vs foldable phone outside of China this week, with a price tag of nearly $1,700. It also took the wraps off the Honor Magic5 Pro, its high-end flagship phone.

Under Huawei, Honor focused on mid-tier smartphones. But the company is now looking to tap the high-end market where Apple and Samsung dominate.

Zhao is aware of the challenges Honor faces in its pursuit and it's taking a careful approach to growth.

"Our ambition [is to] do things better for today … and in future, we have the target is how to satisfy our customer. And also how to build trust and relationships with our partners. And these two things, [if] we make this healthy, then the growth, the target, the sales number will come to us automatically," Zhao said.

"If you just pursue higher volume … finally you will lose it."

Honor only launched its first phones outside of China last year after being sold off from Huawei in 2020. And it's a tough time for Honor to jump into the market. In 2022, smartphone shipments fells to their lowest level since 2013. However, high-end smartphones, those that cost over $800, accounted for 18% of the total handset market in 2022, up from 11% in 2020, Canalys data shows.

That's why Honor is chasing this category. But Honor still lags Apple and Samsung.

The company's worldwide market share stood at 4.6% in 2022 versus 21.2% for Samsung and 18.3% for Apple, according to Counterpoint Research data.

At the Mobile World Congress in Barcelona this week, Honor had a huge stand showing off its latest wares, underscoring its ambition to be a global player. It was right next to Samsung's exhibition, highlighting its desire to be seen in the same vein as the South Korean giant.

Honor had a large poster for the Magic Vs with the tagline: "Unfold your magic."

The foldable was the star of Honor's show. Foldable devices were pioneered by Samsung, which released its first smartphone of this kind in 2019. Other companies, mainly Chinese, have followed. And they are now starting to release them on the global stage. These smartphones have a bendable screen.

Oppo launched its Find N2 Flip last month while the CEO of Lenovo, which owns Motorola, told CNBC another Razr foldable phone will be launched this year.

Foldables accounted for just 1.1% of total smartphone shipments in 2022, according to research firm IDC, and are only expected to increase to 2.8% in 2026. But Zhao believes there is a future for these devices, even as he acknowledged challenges including the weight and battery life of these smartphones currently.

Zhao would not be drawn into discussing sales targets but said he is focused on making the best foldable products which in turn will help its growth.

"Our ambition and target is develop the best foldable phone, so be the number one technology for foldable phones. And if we do this, I believe the market will become better and better, and the brand, all these things can grow based on this product," Zhao told CNBC.

The Magic Vs currently folds like a book. Other firms including Samsung and Oppo have launched devices that fold upward like a traditional flip phone. Honor does not have a smartphone like this but Zhao said the company is "seriously" considering it.

"We have this consideration, to be frank. How and when, I cannot disclose too much. But that direction we ... seriously consider that," he said.

Honor was a brand under Chinese telecommunications giant Huawei. But U.S. sanctions in 2020 cut Huawei off from critical chips and access to Google's Android software, which crippled the firms mobile business. Huawei at one point was number one in the world.

To help the brand survive, Huawei sold off Honor in 2020 to a consortium of buyers that included the government of Shenzhen, the city where the company is headquartered.

That allowed Honor to regain access to the critical chips and software it needs. Honor launched its first phone as an independent brand in January 2021.

So far, Honor has remained out of the geopolitical and technology tussle between the U.S. and China. And CEO Zhao is not worried about sanctions similar to those put on Huawei eventually being put on an independent Honor.

"Why would we worry about this? Our business model is like Oppo, Vivo and Xiaomi," Zhao said, referencing other Chinese smartphone makers that have also not had any sanctions levied against them.

"We provide to the industry and to the end consumer, and also to the market, to our partners, we provide our value. Also you know this is the open competition and open market. We follow all the policy, we develop our business in that country."