It may have been a blip on the radar screen of the global handset industry, but the screams were heard around the world.
When BenQ Corp. announced recently that it would no longer inject money into its BenQ-Siemens handset business, headquartered in Munich, Germany—a simple business decision after three consecutive quarters of financial losses, sharply eroded market share and the expiration of a German labor agreement—the reaction in Germany was outrage.
Most of the vitriol coming from German politicians, labor leaders and media, however, focused not on BenQ but on Siemens AG, which quickly deferred 30-percent executive pay raises that already had drawn fire and created a $45 million fund to assist up to 3,000 cast-off BenQ-Siemens workers.
According to at least one German newspaper—and common sense—the instant fund for re-training and employment searches was designed not only to assist workers but to stop the damaging headlines.
The somewhat bizarre scenario—after all, BenQ-Siemens workers in Germany no longer work for former parent Siemens AG—reflected the difficulty, in highly socialized Germany at least, of shuttering an unprofitable business and eliminating jobs, according to at least one analyst.
“The German economy has struggled under the weight of a socialized system across industries,” said Chris Ambrosio, director of mobile device research at Strategy Analytics. “Anyone familiar with the German economy can tell you that.”
Last year, Siemens had paid BenQ $303 million to take its handset business, once No. 4 in global market share, and run with it. After an initially strong showing in fourth-quarter 2005, with more than 11 million handsets shipped, the BenQ-Siemens entity—which had immediately claimed No. 6 in global market share—stumbled and posted three consecutive quarterly losses, its market share eroding from 4.7 percent to a projected 3.1 percent for this year, according to Strategy Analytics’ research.
The reasons for this precipitous fall undoubtedly are many and prominently include a lack of product development at the level necessary to compete in a rapidly evolving market, according to Ambrosio. The analyst also cited the potential for cultural and integration issues in a marriage between the Taiwanese industrial conglomerate and the intensely hierarchical German vendor. (Ambrosio disclosed that BenQ is a client of Strategy Analytics.)
If getting a running start in the handset market proved difficult for the BenQ-Siemens business, one might consider the disparate trajectories of the two parties. BenQ had ambitions to graduate from its status as an original design manufacturer to an original equipment manufacturer with the sheen of a recognizable brand name. Meanwhile, Siemens clearly sought to sell off a non-performing business unit that had stopped investing in product development prior to the deal. The nature of BenQ’s expectations for the deal, as well as Siemens’ sales pitch, probably played a role—but whether intimate details of the arrangement will surface in a post-mortem is anyone’s guess.
Responsibility for the ensuing financial fiasco aside, the new entity found itself unable to move fast enough in a market suddenly dominated by innovative thin phones from Motorola Inc. and its South Korean rivals, Samsung Electronics Co. Ltd. and LG Electronics Co. Ltd. Meanwhile, both Motorola and Nokia Corp. in their rivalry ratcheted up their global market share, squeezing lesser players.
The restrained BenQ Corp. announcement on Sept. 28 simply stated that it “resolved to discontinue capital injection” into its BenQ Mobile subsidiary in Germany, which immediately filed for insolvency protection. A court-appointed administrator has 90 days to salvage the operation, a seemingly unlikely scenario given BenQ’s stance on capital investment. BenQ, however, will continue its branded mobile business in selected markets, using its Asian design and manufacturing operations. Despite “working alongside our German colleagues” and achieving “a number of milestones,” widening losses made the “painful” decision to stop investment unavoidable, according to K.Y. Lee, chairman of the parent BenQ Corp. Other BenQ subsidiaries in Brazil and elsewhere are under review as well, Lee said.
BenQ Corp. makes LCD monitors for Dell Inc. and Hewlett-Packard Co. and televisions for Sanyo Electric Co. Ltd.
The pain felt in Germany, however, had the public howling for accountability and German wrath focused on Munich-based Siemens. German politicians, labor leaders and media suggested—and Siemens vigorously denied—that it unloaded its handset business and, in effect, the livelihoods of 3,000 workers by “selling” the unit to BenQ, knowing all along the business was unsustainable.
Siemens’ Chairman Klaus Kleinfeld went so far as to suggest that his company would explore legal options against BenQ, which he said “promised” to maintain its German facilities. Perhaps Kleinfeld protested too vigorously to maintain credibility in his own country. An Oct. 2 headline in the Financial Times Deutschland read: “Siemens is battling to restore its image.”
