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BenQ-Siemens merger prompts chain reaction

BenQ Corp's (明基) purchase of Siemens AG's handset operation appeared to begin a drawn-out consolidation in Taiwan's handset industry, after a local handset maker announced late Wednesday its plan to withdraw from the business in July.

Lite-On Technology Corp (光寶科技), a leading electronics maker in Taiwan, plans to indefinitely suspend its mobile phone assembling business on July 1, the company's financial executive Andrew Lin (林群) said in a statement Wednesday.

"We will focus on manufacturing handset components such as keypads and camera modules," Lin said in the statement.

The company said its exit from the low-margin business is because major handset vendors only outsource production of low-end models.

But industry watchers said this is just part of the reasons behind Lite-On's decision to get rid of the struggling unit, as the company was never able to achieve economies of scale and is facing tenacious competitors.

Daniel Wang (王德善), an analyst with Primasia Securities in Taipei, said the BenQ-Siemens deal has dashed Lite-On's last hope of getting more orders from Siemens, one of its two biggest customers, to lift the division's poor profitability as BenQ will make phones for Siemens taking over the German company's existing partners.

Quanta Computer Inc (廣達電腦), which also makes phones for Siemens, could suffer setback in orders, Wang said, but that should not inflict damage to the world's biggest laptop computer contract maker.

"The Lite-On bombshell is just the beginning of the chain reaction set off by BenQ-Siemens deal," said Steven Tseng (曾續良), an electronic hardware analyst with Yuanta Core Pacific Securities (元大京華證券).

“Big is beautiful. Only price matters,” he said. Analysts said only big names like BenQ and Foxconn International Holdings Ltd (富士康), a Hong-Kong-listed handset manufacturing affiliate of Hon Hai Precision Industry Co (鴻海精密), would survive in this industry overburdened with contract manufacturers.

To stay competitive, Foxconn decided to acquire Chi Mei Communication Systems Inc (奇美通訊) in May to boost cost-saving and design capabilities, while Compal Electronics Inc (仁寶電腦) proposing a similar move but at a much smaller scale.

Compal President Ray Chen (陳瑞聰) last week said he is considering combining the company's handset division with its mobile phone subsidiary Compal Communications Inc (華寶通訊). He didn't specify the time frame for this plan.

Compal Communications is Taiwan's No.2 handset maker. The company targets a shipment of over 25 million units this year.

Even so, Yuanta's Tseng said he remained gloomy over the contract making industry.

“I won't be too optimistic about the result, or the prospect of Taiwan's handset contract manufactures over the next few years,” he said.
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