Sat, Jun 03, 2006 page11

• BenQ Mobile on track to profitability, CEO says

  CELLPHONES Plans to cut costs and consolidate research and development at the former Siemens unit will put it into the black this year, according to its chief executive

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  BenQ Corp (明基), which took over Siemens AG's unprofitable mobile-phone unit last year, is more than halfway through a cost-cutting program at the enlarged division, on schedule to return the unit to profitability by the fourth quarter, BenQ Mobile chief executive officer Clemens Joos said.

  "We've always said we want to wring 500 million euros [US$640 million] from the cost base, and I would say we've achieved more than half of that," Joos said in an interview during a conference in Bonn on Thursday.

  "It's a challenging target," he added.

  Joos shut a handset site in Ulm, south Germany, and last month agreed to sell a Danish center to Motorola Inc to cut costs and consolidate research and development in two plants in the cities of Munich and Kamp-Lintfort. BenQ Mobile has released 14 handsets this year and will debut a similar number in the second half of the year, Joos said.

  The takeover of Siemens' business vaulted BenQ from near obscurity to the No. 6 ranking on the global cellphone market and handed the Taipei-based parent, BenQ, an internationally recognized brand name.

  Still, with a market share of 3.5 percent in the first quarter, according to researcher Gartner Inc, BenQ lags behind Nokia Oyj, Motorola and Samsung Electronics Co.

  Shares in BenQ fell 0.2 percent to close at NT$23.85 on the Taiwan Stock Exchange yesterday. The stock has plunged 25 percent this year, compared with a 6.3 percent gain in the benchmark TAIEX.

  "BenQ's cost savings are pretty [much] in line with its own guidance," said Andrew Lin (林榮彥), a Taipei-based analyst with KGI Securities Co (中信證券).

  "Market acceptance of its new models, which mostly will be rolled out in the second half, will be the key variable for the company to return to profit," he said.

  BenQ said on April 24 that it had shipped 7 million mobile phones in the first quarter and expected that figure to rise by more than 30 percent in the second quarter.

  Nokia and Motorola, which together control more than half of the global handset market by shipments, are increasingly relying on sales of lower-priced models in China and India as demand growth in those countries outpaces Europe and America.

  Jorma Ollila, chief executive of market leader Nokia, told CNBC in an April 20 interview that average selling prices were "likely to go down a bit for the industry this year" because of the rising share of phone sales in emerging markets. The average price of a Nokia handset has dropped more than one-fifth in the past two years.

  In contrast, BenQ, whose average prices have lagged behind rivals, is seeking to narrow the gap by focusing on more expensive models that feature music players and high-resolution cameras.

  "Nokia and Motorola are adding many first-time users," Joos said. "We don't try to compete on scale."

  BenQ phones' average selling price, which was close to 80 euros in the first quarter, will rise by more than 10 percent in the current quarter, Joos said, reiterating an April forecast. Sony Ericsson Mobile Communications Ltd, which ranks one notch above BenQ by market share, reported a first-quarter average selling price of 150 euros.

  BenQ, which also makes laptop computers, DVD recorders and digital projectors, posted a first-quarter net loss of NT$4.99 billion (US$155 million) because of costs related to the purchase of the phone unit from Siemens, Germany's largest engineering company. The enlarged handset division accounted for 35 percent of BenQ's sales in the period. BenQ Mobile will be profitable by the end of this year, Joos said.

  Advertising spending for BenQ Mobile will increase this year and includes sponsoring Spanish soccer club Real Madrid from next season through 2010, gaining an advertising platform on jerseys of players including Brazil's Ronaldo and David Beckham.
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