Taiwan Ratings Corp (中華信評) yesterday lowered its corporate credit rating and unsecured corporate bond rating on BenQ Corp (明基) to twBBB from twA-, citing the handset maker's huge operating losses for the final quarter of last year.
BenQ's short-term corporate rating was also lowered to twA-3 from twA-2, the ratings agency said in a news release.
All of the company's ratings will remain on Taiwan Ratings' CreditWatch with negative implications, the agency said, citing concerns over whether BenQ can break even in its handset business over the next few quarters.
BenQ last week reported operating losses of NT$9.1 billion (US$280 million) for the fourth quarter and projected losses of the same magnitude for the first quarter of this year.
"Given its poor operating performance, BenQ's objective to make its handset business break even by the end of this year appears very optimistic, requiring the company to achieve a sharp improvement in its unit sales and average selling price in addition to the cost savings of 500 million euros (US$604 million) it plans to generate this year," said Taiwan Ratings, a local arm of Standard & Poor's.
But BenQ chairman Lee Kun-yao (李焜耀) said in an interview on Monday that his company will reduce losses in the first quarter by selling more profitable handsets, six months after taking over Siemens AG's money-losing cellphone unit.
Lee is focusing on mobile phones that can download music and games before competing in the mass market with Nokia Oyj and Motorola Inc. BenQ's average handset selling price will rise to more than 90 euros this year, from about 70 euros at the end of last year, Lee said.
"Targeting high-end handsets is a move in the right direction for BenQ, as it doesn't have the scale to compete in the mass market," said Tom Fu, a fund manager at PCA Securities Investment Trust Co in Taipei. "But all I care about is when is the company going to make a profit."
"Putting out low-end handsets to tap the mass market is not a good idea for us at this time," Lee said. "BenQ doesn't have the kind of economies of scale to compete with bigger players like Nokia."
BenQ plans to offer 30 new models this year, including 12 that went on sale in the first quarter, adding models with larger color displays and music players. Lee reiterated his target, which he first stated in January, of having sales of US$9 billion for this year compared with US$5 billion for last.
Although BenQ has launched 12 new handsets during the first quarter of this year and plans to execute an intensive promotional campaign during the upcoming FIFA Football World Cup, Taiwan Ratings said the improvement in the company's mobile handset sales performance is likely to be constrained by its weak presence in the high-end market and its relatively limited marketing resources.
"Even if BenQ can achieve its near-term objective, the company faces challenges in maintaining sustainable profits in the longer term because of its weak position in the global mobile handset market," Taiwan Ratings said in the statement.
The agency concluded that it may downgrade BenQ's ratings if the company fails to reduce its operating losses to NT$4 billion in the second quarter or if its liquidity deteriorates substantially.
Shares of BenQ were unchanged at NT$26.2 on the Taiwan Stock Exchange yesterday.
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