It really makes sense to be read this way However, I see some people take it as a new word, abbreviation of two.
I've always felt clumsy saying Fave Icon, it just rolls of my tongue saying "FAV-ih-con", even though the pronunciation should be clear. But that's me.
fav - eye - con would be correct. However, it wasn't meant ot be something you can pronounce... it is meant to be a favorite icon, aka icon picture for web bookmarks.
A favicon (short for "favorites icon"), also known as a page icon or an urlicon, is an icon associated with a particular website or webpage. its Fav(Favorites)-Icon(icon).