In a sign of how tough the mobile phone business is these days, Taiwanese electronics maker BenQ has agreed to take over Siemens AG's loss-making handset division in return for Euro 250 million (AUD$400 million), and to try to rebuild it as a top global contender.
The German electronics giant will also purchase a Euro 50 million stake in BenQ to solidify the deal, and allow the Taiwanese mobile phone maker to use the Siemens brand name for the next five years.
"The Euro 250 million is a sort of investment to ensure a smooth transition" of the mobile phone business to its new owner, said Wolfram Trost, a spokesman for Siemens in Germany.
The substantial payment by Siemens suggests how tough competition in the mobile phone business has become. The top three players, Nokia, Motorola and Samsung Electronics, have been pulling away from the rest of the pack over the past several months in terms of market share. Unless smaller handset makers find a profitable niche, more consolidation in the industry could be on its way, observers said.
Siemens will also take a Euro 350 million charge related to the deal, but Trost could not say immediately if that charge included the payment to BenQ. BenQ will not take on any debt as part of the arrangement.
"Siemens really impresses me," said Y.T. Du, managing director of Taiwan investment banking at Citigroup and lead arranger in the deal. "They really care about their employees and they really care about their brand name. They really wanted this (mobile phone division and its employees) to go to a good company."
Under the terms of the deal, BenQ will acquire Siemens' entire global mobile phone business, which netted sales of Euro 4.98 billion in its fiscal year 2004. The deal includes manufacturing operations in Brazil, China and Germany, hardware and software technologies, and access to Siemens' broad customer base. In addition, BenQ will take over the group's more than 6,000 employees worldwide, and can use the Siemens mobile phone brand for five years.
The deal could propel BenQ into the number-four spot in the global handset business, depending on how the two companies fare between now and the closing date of the division transfer, set for Sept. 30 this year.
But the deal is not all roses for BenQ. Siemens' mobile phone division posted a loss of Euro 152 million in its fiscal year 2004 and has been losing market share to rivals at a furious pace. Between January and the end of March, Siemens' handset sales slumped 27.3 percent to 9.3 million units, from 12.8 million during the same period a year earlier.
BenQ plans to merge its mobile phone operations with the Siemens' unit to form a subsidiary company that will be based in Munich, Germany. BenQ has not decided on a name for the company yet, but a BenQ executive in Taiwan said it could be BenQ-Siemens.
Siemens has already been trimming staff in the division to help control costs, BenQ said, and the Taiwanese company expects to continue to make reductions in what it said will be a slow, careful manner.