June 19 (Bloomberg) -- Huawei Technologies Co., China's biggest phone-network equipment maker, is considering selling a majority stake of a handset unit that may be worth at least $4 billion, two people familiar with the plan said.

The closely held company sent out invitations in the past month to private-equity firms including Bain Capital LLC, Blackstone Group LP, TPG Inc., Kohlberg Kravis Roberts & Co., Warburg Pincus LLC and Carlyle Group, the people said, asking not to be identified because the matter is confidential. Bidders have until June 23 to submit a non-binding offer, they said.

A sale would help Huawei raise funds to invest in its main operations of making routers and other network gear for China Mobile Ltd. and other carriers and exit a slowing market dominated by Nokia Oyj and Samsung Electronics Co. Investors in the Shenzhen, South China-based company's unit would get access to a business that researcher BDA China Ltd. estimates doubled revenue to $2.6 billion last year.

``Huawei makes cheap phones for emerging markets, with low- cost manufacturing in China behind that, which could make the unit attractive for investors,'' said Duncan Clark, managing director of Beijing-based BDA. ``Handsets are a lower margin, highly competitive business, and not Huawei's strong point.''

Huawei plans to sell at least 49 percent of the handset business, which also makes modems and wireless Internet cards, although the size of the stake would depend on the proposals submitted, the people said. The company doesn't plan to invite strategic investors to make a bid to avoid competition in the industry, they said.

`Exploring Opportunities'

The Chinese equipment maker hired Morgan Stanley as its financial adviser in ``exploring opportunities'' for private equity firms to invest in its handset unit, Huawei said in an e- mailed statement.

Richard Barton, Asia chief executive officer of Gavin Anderson & Co., which handles media queries for KKR, and Alex Stanton, a New York-based spokesman for Bain, declined to comment.

TPG spokesman Owen Blicksilver, Warburg Pincus spokeswoman Julie Johnson Staples and Blackstone spokesman Peter Rose, all based in New York, didn't respond to e-mails seeking comment after office hours.

Huawei's unit, which makes customized phones for clients including Newbury, England-based Vodafone Group Plc, may generate $380 million in profit on $3.5 billion of revenue in 2008, the people said, citing information sent to potential bidders.

Foxconn Comparison

While analysts don't publish reports on Huawei, Frederick Wong at BNP Paribas SA in Hong Kong said investors may refer to Foxconn International Holdings Ltd., a contract handset maker for clients including Nokia, to assess the unit's valuation.

Hong Kong-listed Foxconn trades at 10.6 times estimated 2008 earnings, according to data compiled by Bloomberg. Based on Foxconn's multiple, Huawei's unit would be valued at $4 billion.

Smaller phone makers are facing increasing competition from Nokia and Samsung, forcing China's Lenovo Group Ltd. to sell its handset unit for $100 million in February.

Nokia sold more phones in the first quarter than its three closest rivals combined, said researcher IDC. The Espoo, Finland-based company boosted its share of the global market to 39.6 percent from 35.7 percent a year earlier, the Framingham, Massachusetts-based research company said.

Widening Gap

Samsung's share rose to 15.9 percent in the first quarter from 13.6 percent, while Motorola Inc.'s almost halved to 9.4 percent, IDC said. Demand for low-cost handsets in developing nations will fuel the market's growth this year, while sales in other regions will come under ``increased pressure,'' the researcher said.

``Economic conditions aren't very strong right now and it's leading people to spend less,'' said Kevin Wang, an analyst with researcher ISuppli Corp. in Shanghai.

The mobile business's sales accounted for 16.4 percent of the Huawei's total revenue in 2007, from 11.8 percent in 2006, according to BDA, citing data from Huawei, which doesn't publicly disclose revenue or profit figures.

Huawei, which won its first contract outside mainland China from Hong Kong's Hutchison Whampoa Ltd. in 1996, got 72 percent of its $16 billion in contract sales last year from overseas, according to the company's Web site.

The decade-old company, founded by a former Chinese army officer, shipped 18 million mobile phones, with handsets accounting for 46 percent of the unit's sales last year, according to BDA.

Employee Owned

``Huawei is a private company 100 percent owned by its employees,'' said Ross Gan, a Shenzhen-based spokesman for Huawei, without giving more ownership details.

Huawei and Bain Capital abandoned a $2.2 billion bid for 3Com Corp. in March after some U.S. lawmakers said they objected to the acquisition because it would put anti-hacking technology used by the Pentagon in Chinese hands.

Selling the stake to a U.S. investor may help Huawei win orders from U.S. mobile-phone operators, the people said.

The Wall Street Journal reported last month that Huawei may sell its handset operations.

Funds from the sale may help Huawei compete against larger network-equipment makers Ericsson AB and Alcatel Lucent, according to ISuppli's Wang.

``Huawei will need a lot of resources to challenge the likes of Ericsson and Alcatel,'' Wang said.

To contact the reporters on this story: Cathy Chan in Hong Kong at Kchan14@bloomberg.net; John Liu in Shanghai at jliu42@bloomberg.net

Last Updated: June 19, 2008 05:41 EDT