BenQ hit by collapse of German mobile unit

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BenQ will drastically downsize its handset business by focusing on Asian markets and niche products in the near term, but is considering bringing in private equity investors to reach its goal of building a global brand in the longer term, the Taiwanese electronics group said on Tuesday.

The drastic shift away from aggressive expansion aims at restoring the company’s financial health after escalating losses at BenQ Mobile, the handset unit it took over from Siemens in 2005, forced it to release the Munich-based subsidiary into insolvency last month.

BenQ reported a T$12.2bn ($366m) net loss for the three months to September 30, its fourth straight quarterly loss, mainly on losses from the Germany-based unit.

Eric Yu, chief financial officer, said inventory losses from the handset subsidiary were fully covered by T$11.8bn in loss provisions included in the third-quarter financial statement.

BenQ said it expected a small net loss in the fourth quarter but would return to operational profitability very soon and aimed to have its handset operations break even next year. As manufacturing capacity will drop to 40 per cent of the current level and research and marketing expenses to 10 per cent of the current level, the break-even threshold will be low, said Sheaffer Lee, president.

“We will concentrate on China and other Asian countries because these are the handset markets with the highest growth,” said Lee Kun-yao, chairman. But he added that BenQ would “definitely” return to Western European markets because these were indispensable for any company seeking to build a global brand.

“I am not optimistic about that,” said Kevin Chang, an analyst with JP Morgan in Taipei. Analysts said the company would fare better if it let go of its global brand ambitions.

But BenQ executives said concentrating on Asia was only meant as a transitional solution as the company needed to clean up in the aftermath of the failed Siemens deal, re-define its brand and product portfolio and find new resources for growth.

BenQ is in negotiations with both Siemens and the insolvency administrator at BenQ Mobile over the use of patents and the BenQ-Siemens brand, and over outstanding payments from Siemens under the original acquisition contract.

The company is still evaluating whether the BenQ-Siemens co-brand, which it is entitled to use for another four years, will do more harm than good to its image, and may decide to abandon it.

BenQ said once these issues were dealt with, it would consider taking a private equity investor in. Sheaffer Lee said the company was in talks with “at least three” private equity funds over a potential stake of up to 40 per cent in BenQ.

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