Vodafone and US giant AT&T have been named as possible buyers for a 50% stake in Huawei Technologies' handset division.
A report from the South China Morning Post said the sale is expected to raise upwards of US$2 billion (â‚¬1.287 billion) for the company, while also making it easier for the firm to overcome US concerns about security issues with the Chinese owners.
Sources told the South China Morning Post that phone companies such as AT&T and Vodafone had expressed an interest, along with private equity firms, Blackstone, TPG and Kohlberg Kravis Roberts.
Observers however said that a sale to a phone company could put Huawei in an uncomfortable position when trying to secure handset sales to rival operators, the report said.
The company was recently thwarted in its attempt to take a minority stake in US based 3Com following a backlash from US politicians over company founder and president Ren Zhengfei's military background.
Bids are expected to be tabled next week, the report said.
Huawei plans to sell off its mobile phone, laptop, wireless data-card and home router businesses, while retaining its network infrastructure division.
The divestment of the handset division into a separate company could well fuel speculation about industry consolidation, particularly as Motorola's handset division is being spun off into a separate company at the moment, the report further said.