BenQ Mobile plans to file for bankruptcy protection in Germany after its Taiwanese parent decided to stop investing in the money-losing operation.
BenQ, which will continue to develop and market BenQ-Siemens brand mobile phones, said it made the decision because it saw no end to the losses after already sinking more than Euro 600 million ($US761.7 million) into the unit.
"We made this painful decision after losses continued to pile up despite our best efforts," KY Lee, chairman of BenQ, said.
BenQ said the bankruptcy filing should not affect customers since the parent company would continue to develop, manufacture and sell BenQ-Siemens handsets from Asia.
The decision comes almost a year after BenQ took over the mobile phone business from Siemens, and leaves the fate of 3000 German workers at BenQ Mobile in doubt. It also highlights the difficulty of turning around a sinking business. Under Siemens, the handset division had been losing market share. The German company even paid BenQ Euro 250 million to take the ailing division off its hands.
BenQ has posted losses for the three financial quarters that have passed since it acquired BenQ Mobile.
Analysts have blamed stiff competition in the mobile phone industry for the troubles many handset makers have faced this year. Industry leaders Nokia and Motorola have both gained market share this year, mainly at the expense of smaller rivals, according to market researcher, Gartner.
BenQ's share of the handset market dropped to 3.2 per cent in the second quarter, from 4.8 per cent the same time last year, according to Gartner. Meanwhile, Nokia's share rose to 33.6 per cent from 31.6 per cent, and Motorola's increased to 21.9 per cent from 17.7 per cent.
If BenQ Mobile can return to financial health as it restructures under the protection of the German government, it could return to the BenQ family of companies, BenQ said.
The Taiwanese company had already taken several steps to reduce costs and turn BenQ Mobile around, including laying off more than 500 workers earlier this year in Germany, and announcing a plan to shut down mobile phone production in Taiwan. The company also announced several measures intended to streamline its operations, including a plan to spin off its non-handset manufacturing business.