Taiwanese electronics maker, BenQ, has announced that its sales and net income dropped sharply during the second quarter due to weaker product pricing for some of its gadgets.
The performance did not bode well for the company's upcoming acquisition of Siemens AG's money-losing mobile phone business, since BenQ will need a strong cash position to sustain the handset business as it works to make it profitable, said a senior telecom analyst at Macquarie Securities in Taipei, Dominic Grant.
BenQ's sales for the three months ended June 30 fell to NT$29.7 billion ($US928.2 million), from NT$42.1 billion during the same time a year ago. Net income fell to NT$480 million, from NT$2.97 billion last year.
"There was heavier price competition in some product lines during the second quarter, mainly in computer-related products," president of BenQ, Sheaffer Lee, said at the company's investor conference.
BenQ expects sales to rise 10 per cent on quarter in the July-September period, as prices and shipments for a number of its products rise, including Liquid crystal display (LCD) monitors and digital projectors.
One major reason BenQ's sales dropped so much from a year ago is the loss of its biggest mobile phone customer, Motorola. BenQ used to be a major contract manufacturer for the giant before Motorola started developing its own brand-name handsets.
Now the Taiwanese company is rushing headlong into its brand name strategy. In June, BenQ struck a deal to take over Siemens' loss-making handset division and try to turn it around. Siemens said it would pay BenQ Euro $US307 million to take over the business and get the new venture off on a solid footing.
It won't be easy. The acquisition will effectively double BenQ's size in terms of sales. And the company will have to sustain Siemens' mobile phone division even as it tries to cut costs and turn it around. That will require strong cash flow.
The addition of the Siemen's division would add sales for BenQ, ensuring that cash flow won't be a problem through the end of next year, chief financial officer at BenQ, Eric Yu, said.
After that, the situation was less clear, he said.
Cutting costs at the German operation will also be difficult, analysts claim, in part because German labor laws make it very difficult to reduce staff. Stiff competition in the worldwide mobile phone industry also makes it tough to raise prices, so the combined company will have to find other ways to become profitable.
In addition, Siemens had a difficult first quarter in the mobile phone business, according to Gartner.
The company's share of the handset market slipped to its lowest level since 1999 due to uncertainty about its future, the market researcher said.
BenQ expected to become more efficient by squeezing suppliers of raw materials and phone-parts for better prices and outsourcing mobile phone production after its own factories were full, executives said. It would also trim its marketing operations.
BenQ has reorganised into three business units, communications, computing, and consumer electronics to ready for the acquisition of Siemens' handset business.