Can an obscure Asian brand turn into a top global handset vendor overnight, by buying into an industrial titan? That's the wager BenQ Corp (
The high-profile purchase marked the beginning of another adventure for BenQ Chairman Lee Kun-yao (
In the past three years, BenQ has begun to win global attention with its innovative product design. But its weak brand awareness among consumers has been little help to sales.
PHOTO: AFP
Even on its home turf, BenQ is losing market share to rival Inventec Appliances Corp (
To sharpen its brand operation, BenQ decided to take a shortcut to the global mass market when opportunity knocked, following in the ambitious footsteps of Chinese electronics vendors Lenovo Group Ltd (
"We hope the BenQ-Siemens brand will bring BenQ to the world," said Lee, during the press conference announcing the take-over last Tuesday.
Analysts said BenQ could risk seeing weakening profitability with the deal.
"BenQ is getting paid for taking a risk," said Vincent Chen (
"With the experience of Lenovo and TCL a reminder of the difficulties in turning around weak western brands, we are very cautious about what BenQ can achieve with Siemens," Chen said.
According to the agreement with Siemens, BenQ will sell cell phones under the co-brand BenQ-Siemens over the next-five-year period after the cost-free take-over of Siemens' handset division headquartered in Munich, which takes effect October 1.
Siemens will give the Taiwanese company 250 million euros to help fund the unit's operations, and will spend another 50 million euros to get a 2.5-percent share of BenQ. Siemens is expected to regain investor support by disposing of the money-losing unit. The short-term reaction to the deal was good: shares of Siemens jumped to 62.94 euros, their highest level since January, in the mid-day session after the announcement in Frankfurt.
But for BenQ investors, a real concern is whether the inexperienced company will be able to succeed where the veteran German electronics company could not, by transforming Siemens' money-losing handset unit into a cash cow.
Siemens' troubled mobile phone division posted its fourth consecutive quarterly loss in the first quarter of this year, with little sign of improvement ahead. The division has lost 500 million euros over the past year.
That doesn't seem to faze Lee, who with a confident smile told reporters in Beijing last Wednesday that his company aimed to turn around the new handset operation in two years, after breaking even next year.
Lee's promise sounded unrealistic to most industry watchers, who said it would be an uphill task for a small Asian company like BenQ to save a Western giant that's on the wane.
BenQ will have to overcome difficulties similar to those faced by Lenovo and TCL, CLSA's Chen warned.
Those difficulties include safeguarding Siemens' falling market share and trimming operating expenses and manufacturing costs, Chen said. BenQ said it hopes to trim US$500 million in costs in the first year of the acquisition.
Siemens is handing over about 6,000 workers of the handset operation to BenQ, which has around 14,000 employees around the globe.
Chen expects BenQ to start booking losses in the third quarter of next year and possibly into 2007.
JP Morgan analyst Johnny Chan shared the same worries with Chen, citing China's TCL Group as a precedent. TCL Multimedia and TCL Communications acquired the loss-making French handset businesses Thomson and Alcatel. Both found it far more difficult than expected to turn around the businesses due to competition and slower progress in cutting costs, Chan said in the latest report.
"Both stocks have seen significant de-rating in the past six months. We suspect BenQ's share price could follow a similar pattern in the next 12-18 months," Chan said.
Chan said he would revise his earnings forecasts to reflect the acquisition in due course. BenQ remains on the "Short" side of JP Morgan's Asia Pacific Tech Trading Portfolio with a target price of NT$27 for 2005, he said.
Despite the pessimistic consensus from analysts, International Data Corp (IDC) said there were some positive aspects of the BenQ-Siemens deal.
"The purchase of Siemens' handset unit will help BenQ expand its brand presence in Europe and Latin America, where Siemens has grabbed a solid market position, as BenQ only has a strong customer base in Asia," said Terry Tsao (
With Siemens' market position and BenQ's strong manufacturing capabilities and cost control, Tsao believes BenQ has a good chance to become one of the world's top handset vendors.
Indeed, it is too early to decide now to where the acquisition, rife with uncertainties, will lead BenQ. But as Tsao concluded, one thing's for sure: established European and US players are facing mounting competition from rising Asian stars.
Among the rows of vibrators, rubber torsos and leather harnesses at a Chinese sex toys exhibition in Shanghai this weekend, the beginnings of an artificial intelligence (AI)-driven shift in the industry quietly pulsed. China manufactures about 70 percent of the world’s sex toys, most of it the “hardware” on display at the fair — whether that be technicolor tentacled dildos or hyper-realistic personalized silicone dolls. Yet smart toys have been rising in popularity for some time. Many major European and US brands already offer tech-enhanced products that can enable long-distance love, monitor well-being and even bring people one step closer to
TRANSFORMATION: Taiwan is now home to the largest Google hardware research and development center outside of the US, thanks to the nation’s economic policies President Tsai Ing-wen (蔡英文) yesterday attended an event marking the opening of Google’s second hardware research and development (R&D) office in Taiwan, which was held at New Taipei City’s Banciao District (板橋). This signals Taiwan’s transformation into the world’s largest Google hardware research and development center outside of the US, validating the nation’s economic policy in the past eight years, she said. The “five plus two” innovative industries policy, “six core strategic industries” initiative and infrastructure projects have grown the national industry and established resilient supply chains that withstood the COVID-19 pandemic, Tsai said. Taiwan has improved investment conditions of the domestic economy
Malaysia’s leader yesterday announced plans to build a massive semiconductor design park, aiming to boost the Southeast Asian nation’s role in the global chip industry. A prominent player in the semiconductor industry for decades, Malaysia accounts for an estimated 13 percent of global back-end manufacturing, according to German tech giant Bosch. Now it wants to go beyond production and emerge as a chip design powerhouse too, Malaysian Prime Minister Anwar Ibrahim said. “I am pleased to announce the largest IC (integrated circuit) Design Park in Southeast Asia, that will house world-class anchor tenants and collaborate with global companies such as Arm [Holdings PLC],”
MAJOR BENEFICIARY: The company benefits from TSMC’s advanced packaging scarcity, given robust demand for Nvidia AI chips, analysts said ASE Technology Holding Co (ASE, 日月光投控), the world’s biggest chip packaging and testing service provider, yesterday said it is raising its equipment capital expenditure budget by 10 percent this year to expand leading-edge and advanced packing and testing capacity amid strong artificial intelligence (AI) and high-performance computing chip demand. This is on top of the 40 to 50 percent annual increase in its capital spending budget to more than the US$1.7 billion to announced in February. About half of the equipment capital expenditure would be spent on leading-edge and advanced packaging and testing technology, the company said. ASE is considered by analysts