Taiwanese electronics manufacturer BenQ Group will take over Siemens’ ailing mobile-phone business, catapulting the Asian upstart into the ranks of the world’s largest handset makers.
Although the exact terms of the deal are somewhat cloudy, Siemens essentially will pay BenQ $303 million to take over its handset business and will buy a 2-percent stake in BenQ for $61 million. Siemens will also take a $121 million write-down related to the transaction.
BenQ, which makes phones, digital cameras, scanners and LCD screens, will acquire Siemens’ entire mobile-phone business along with its 6,000 employees, as well as rights to the Siemens’ brand for five years. The deal includes Siemens’ development and manufacturing factories; its GSM, GPRS and 3G intellectual property; and its headquarters in Munich, Germany. The business will remain headquartered in Munich-one of Siemens’ main stipulations.
Interestingly, BenQ also scores Siemens’ 8.4-percent stake in operating company Symbian, subject to approval by Symbian’s shareholders.
The deal is expected to close in the third quarter.
“With this partnership, we have found a sustainable perspective for our mobile-phones business,” said Klaus Kleinfeld, Siemens’ chief executive officer. “BenQ and Siemens complement one another ideally. We will be uniting our strengths with BenQ’s highly successful consumer business. In addition, we also complement one another perfectly in terms of geography. This will give BenQ, which up until now has been very strong in Asia, access to the European and Latin American markets where we hold leading positions.”
BenQ sold 500,000 branded phones in the first quarter, according to research and consulting firm Strategy Analytics. The company also designs and builds phones for other handset makers. Siemens sold 9.3 million phones in the first quarter. A combined Siemens and BenQ commanded a 5.7-percent market share in the first quarter, according to Strategy Analytics, behind No. 4 handset player LG Electronics Co. Ltd. and just ahead of Sony Ericsson Mobile Communications L.P.
The deal is notable for Siemens in that the company finally can shed its failing mobile-phone business, which posted a $179 million loss in the company’s second quarter. Indeed, Siemens has been suffering since last summer, when Nokia Corp. instituted an aggressive pricing war to shore up its own flagging market share. As Siemens continued to lag the market, company executives began publicly discussing selling the business-comments that served to deter the company’s carrier customers. However, few appeared willing to take on Siemens’ financial losses and its costly labor situation in Germany. Siemens’ Kleinfeld said the company managed to renegotiate its labor agreements to support the BenQ deal. The German jobs are protected through next year.
“We need to provide a future for our employees,” Kleinfeld said.
Although Siemens loses its end-to-end offering of wireless network infrastructure and handsets, the company said it would partner closely with BenQ for such sales. Alcatel Corp. and L.M. Ericsson have also sold their handset businesses.
For BenQ, the deal gives the company access to Siemens’ carrier agreements and distribution channels outside of Asia. BenQ is one of a number of smaller Asian players looking to break into the worldwide mobile-phone market. Indeed, BenQ previously tried to score carrier deals in the United States, without success.
Further, the deal could spell an end for BenQ’s original design manufacturer business. The company has designed and built phones for the likes of Motorola Inc. and others. But the company’s deal with Siemens makes BenQ the world’s fifth-largest mobile-phone maker and therefore a direct competitor to its potential ODM customers. Indeed, analysts have said that Motorola quit its ODM relationship with BenQ because BenQ began selling its own branded phones.
Aside from BenQ and Siemens, the deal could cause serious repercussions for the companies’ suppliers. CIBC World Markets said Siemens chip supplier Infineon has the most to lose from the deal, but that Qualcomm Inc. could score additional business. CIBC makes a market in the securities of a variety of wireless companies but not Siemens or BenQ.
The outlook for a combined BenQ/Siemens is unclear. Nokia, Motorola and Samsung Electronics Co. Ltd. command the vast majority of the worldwide handset business; their combined market share totals more than 60 percent of the industry. Industry analysts have said that the industry’s top three players likely will enjoy most of the market’s profits.
