Taiwanese firm working to stem handset division losses

Taiwanese consumer electronics vendor BenQ is continuing to lose money six months after it purchased Siemens' mobile phone division, but may be beginning to turn the handset business around, analysts say.

The company revealed the losses in its first-quarter earnings report yesterday. BenQ reported sales of $1.78bn, and a net loss after tax of $153m, for its product range, which includes PCs, notebooks, digital cameras and other consumer electronics, in addition to mobile phones.

Sales of handsets fell as the company tried to knock the loss-making former Siemens division into shape. The $153m loss was an improvement over the previous quarter, but still 20 per cent worse than analysts had predicted.

"As forecast, we sold seven million handsets in Q1, which came in below Q4 because of seasonal weakness and phasing out unprofitable models. Overall operating performance improved, however, driven by improving average selling price and lowering of operating expenses," said Eric Ky Yu, BenQ's senior vice president of finance.

Primasia Securities of Taipei warned in a research briefing that BenQ will have to confront a serious financial burden, and especially cash problem, for its handset division.

BenQ is planning to seek $500m to $600m in additional funding, the securities firm reported.

BenQ has been making strenuous efforts to cut its handset costs. Its mobile phone division has reduced expenses by 40 per cent so far and plans to continue this process by shutting down the former Siemens research centre in Germany, according to BenQ Mobile chief executive Clemens Joos.

However, analysts remain cautious. "Although BenQ indicated better shipment, gross margin and average selling price in the second quarter of 2006, we are still concerned whether it can deliver its 2006 handset shipment guidance of around 45 million units, as tier-one handset OEMs such as Nokia and Sony Ericsson are consistently gaining market share in Europe," said Primasia Securities.

Siemens paid BenQ $250m last year to take the troubled mobile division off its hands. Benq had never suffered a quarterly loss prior to its purchase of the handset division, but has not had a profitable quarter since.

Siemens is reported to be in talks with Motorola about the sale of the remaining part of its traditional telecoms business, Siemens Communications, which makes equipment for service providers.