Thu, Mar 16, 2006 - Page 11 News List

BenQ shares plummet in wake of Siemens takeover

'GROWING PAINS' The nation's biggest cellphone manufacturer is hurting from perceptions that the takeover will take some time to deliver a serious profit

By Theresa Tang  /  BLOOMBERG

Shares in BenQ Corp (明基), the nation's biggest cellphone maker, had their biggest decline in 20 months, falling by the daily limit after the company reported a worse-than-expected loss on its takeover of Siemens AG's handset unit.

The stock fell 6.9 percent to close at a four-month low of NT$29.25, compared with a 0.9 percent gain in the benchmark TAIEX. BenQ had a net loss of NT$6.02 billion (US$185.6 million) in the fourth quarter.

Chairman Lee Kun-yao (李焜耀) is counting on the Siemens unit to turn BenQ into a recognized global brand competing with market leader Nokia Oyj and Motorola Inc. But investor Kevin Yang (楊師銘) said he was concerned about the effect the takeover would have on BenQ's long-term profitability.

"BenQ is suffering from growing pains after taking over an international-class company," said Yang, vice president of International Investment Trust Co (國際投信). "The question is, how long will it take for BenQ to get over this phase?"

Analysts from Goldman Sachs Group Inc and Citigroup Inc cut their estimates for the company's earnings this year.

There was "little fundamental downside from here, but high volatility and low visibility of near-term earnings are still the main concern," Taipei-based analysts Joey Cheng and Robert Chen of Goldman Sachs Group said in a March 14 report.

"Short-term investors should still avoid BenQ for the time being," they said.

Goldman reduced BenQ's earnings estimate for this year to a net loss of NT$9.2 billion, from its earlier prediction of a NT$433 million profit, according to the report. The bank has an "in-line/neutral" recommendation on BenQ's stock and maintained the target price at NT$28.

Citigroup, which reiterated its "sell" recommendation on BenQ shares, cut BenQ's earnings estimate for this year to a net loss of NT$9.6 billion, from its earlier prediction of a NT$1.2 billion profit.

"The reality is that it may take another year plus for BenQ to return to profit," Kent Chan (陳衛斌), head of Taiwan equity research at Citigroup Inc, said in a March 15 research report.

The greater risk for BenQ's mobile division is that "even if it can break even by the beginning of 2007, competing brands may be joining BenQ in the red as the industry becomes increasingly competitive at the higher end, multimedia and 3G phone market," Chan said in the report.

The loss was due mainly to the integration of the Siemens mobile-phone unit and the marketing of the BenQ-Siemens co-brand in January, the company said on Tuesday. BenQ president Sheaffer Lee (李錫華) reiterated the company's target for its mobile-phone business to break even by the end of this year.

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