Wheel of fortune

BenQ Mobile and Sony Ericsson face differing fate

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By  Published  October 31, 2006

BenQ Mobile, a subsidiary of Taiwan's largest mobile phone manufacturer BenQ, filed for insolvency protection a day after its parent firm decided to stop funding for the unit.

BenQ Corporation announced in September that it had decided to stop funding the German unit it took over from leading European electronics firm Siemens less than a year ago.

"To stem unsustainable losses at BenQ's mobile operations, BenQ Corporation's board of directors convened and resolved to discontinue capital injection into BenQ Mobile, its German mobile phone subsidiary," BenQ said in a statement.

"Since October 2005, we have committed and invested an inordinate amount of capital and resources into our German mobile phone subsidiary.

We have worked alongside our German colleagues from the beginning and were able to achieve quite a number of milestones.

Despite the progress achieved in reducing cost and expenses, widening losses have made this very painful decision unavoidable," said KY Lee, chairman of BenQ.

Siemens paid BenQ approximately US$317 million to take over the division, but the Taiwanese firm has been unable to restore it to profitability.

BenQ estimates it has lost US$760million on the unit since the acquisition.

The German unit, which employs about 3,000 people, has offices in the cities of Munich and Bocholt and a factory in the western town of Kamp-Lintfort.

It is not clear yet what impact, if any, the decision will have on BenQ's global operations, and there are still hopes that the division may be saved.

Martin Prager, the insolvency administrator for the unit, said a sale to a rival "would be one of the best options to save the company".

Siemens has since set up a US$44.6 million fund for employees of BenQ Mobile in Germany.

In a situation that stands in complete contrast to BenQ Mobile's woes, Sony Ericsson, the handset manufacturer forged by Sony and Ericsson five years ago in order to save the ailing Ericsson mobile handset business, last month announced that for the third quarter to end September the number of mobile handsets shipped globally rose to 19.8 million, up from 13.8 million a year earlier.

Sales for the period amounted to US$3.65 billion, with net income more than doubling to US$378 million, up from US$132 million a year earlier.

Sony Ericsson captured market share during the quarter due to the success of products such as the K800 Cyber-shot phone and Walkman phone line-up.

The company further strengthened its music offering at the end of the quarter with the shipment of a new high-end Walkman phone, the W850, a triband/ UMTS slider phone with storage capacity for up to 1,000 songs.

Sony Ericsson also enhanced its music proposition by upgrading its PlayNow service to include full track, over-the-air downloads to high-end Walkman models such as the new W850 and by launching M-BUZZ, a fixed and mobile internet space to promote new artists and their music.

"The third quarter saw Sony Ericsson reap the success of hit products announced earlier in the year such as the high-end K800 and W810, mid-range K610 and lower-priced W300 and K310.

“Our strategy of using flagship products to give Sony Ericsson a lead position within a product category such as imaging or music is creating a halo effect over lower-end models in the same category and encouraging new users to try our phones," explained Miles Flint, president of Sony Ericsson.

The company continues to forecast the 2006 global handset market as being above 950 million units.

On this basis the company believes it has outperformed the growth rate in the market and gained over 1% point market share this quarter, to reach a global market share of approximately 8%. Sony Ericsson is a 50/50 joint venture.

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