Siemens AG appears to be in the midst of peddling its handset business, but by all accounts the world’s No. 5 phone vendor isn’t having any luck.
That Siemens is unable to sell its mobile-phone operations is especially notable in this era of carrier mega-mergers. Cingular Wireless L.L.C. acquired AT&T Wireless Services Inc., and Sprint Corp. is working on its teaming with Nextel Communications Inc., but consolidation among the world’s handset suppliers has yet to unfold. The reasons are both clear and complicated.
“Siemens’ handset group is not profitable, and it’s not well run,” explained Chris Ambrosio, director of the wireless device strategies service for research and consulting firm Strategy Analytics. “Nobody wants to buy an operation that is in disrepair.”
Siemens’ executives for months have been openly discussing the possibility of some kind of shake-up in the company’s mobile-phone business. The exact details are open to speculation, but the company’s basic options include some type of internal restructuring, a joint venture, an outright sale or-the most remote possibility-a total shutdown. Various players, such as LG Electronics Co. Ltd., Chinese vendor Ningbo Bird, Motorola Inc. and others, have been rumored to be in discussions with Siemens for its phone business.
Nevertheless, the vendor recently introduced three handsets, an indication it is still in the game. And the company may have some time to debate its options as its successful network business can support its handset division. Siemens did not return calls for comment.
The black marks against Siemens are abundant. First and foremost, the company’s handset business is suffering-Siemens recorded a loss of $186 million in the fourth quarter compared with a profit in the same quarter a year ago. The losses coincide with significant market setbacks. In the fourth quarter of 2003, Siemens enjoyed a worldwide market share of 9.5 percent, but that number dropped to 6.8 percent in the fourth quarter of last year. Perhaps most importantly, Siemens might give up its handset business in the United States, the world’s second-largest mobile-phone market behind China. RCR Wireless News reported last month that Siemens laid off about 74 employees in its U.S. handset business. Although the company did not disclose how many workers would remain, sources indicate that the company’s personnel will number around 20 after the cuts.
Ambrosio said Siemens lacks an efficient, fluid distribution system like that of rival Nokia Corp. Thus, the company reacts slowly to changing market conditions. Indeed, Siemens released its first camera phone in the United States in October, fully two years after the first camera phone hit the U.S. market. Further, Siemens’ brand doesn’t have much pull outside of its home base of Europe; the company’s handset business is one of its only consumer-facing operations.
On the plus side, Siemens has relatively solid operations and a well-known brand in Europe and Central and South America. More importantly, the company has relationships with carriers across the world-ties that often represent the greatest stumbling block for new market entrants.
However, Ambrosio said Siemens’ drawbacks generally outweigh its positives. He said most handset players won’t dole out millions simply to gain access to additional carriers. Korea-based LG already has managed to surpass Siemens in terms of market share and is making major headway into Siemens’ stronghold of Europe. For China’s Bird, the company last year formed a joint venture with Siemens-a move that gave it access to Siemens’ distribution network. Thus, the joint venture somewhat precludes Bird from needing to purchase Siemens’ handset business outright. Finally, Ambrosio said there doesn’t appear to be any major consumer electronics companies with urges to buy into the mobile-phone market, like Sony Corp. did with its L.M. Ericsson joint venture.
“It’s going to be hard to find a buyer,” said Brad Akyuz, a handset analyst with research and consulting firm Current Analysis. “It’s always hard to revive a brand that has a downward momentum.”
“Global mergers are a very difficult thing to pull off,” Ambrosio said, pointing out that Sony Ericsson Mobile Communications L.P. only recently managed to turn a profit after several years in the red.
So what are Siemens’ alternatives? Ambrosio said the company doesn’t need to make any drastic moves in the short term. The strength of the company’s network business will provide buoyancy for its handset business. Further, Siemens’ handsets create an end-to-end offering when combined with its network equipment.
“I don’t think it’s an urgent thing,” Ambrosio said.
Indeed, Siemens just last week released three new handsets. The company’s AX75, A75 and A70 feature candybar-style designs and no-frills features like text messaging. The phones will be sold throughout Europe, Asia and Latin America. Further, Siemens typically shows off its new products at the CeBIT European trade show, scheduled for March 10-16. Ambrosio said the state of Siemens’ business should be evident based on the strength of its presentation at CeBIT.
