FRANKFURT/TAIPEI (Reuters)— German engineering giant Siemens is selling its mobile phones unit to much smaller Taiwanese rival BenQ, it said on Tuesday, drawing a line under hundreds of millions of euros of losses.

The deal—which will cost Siemens 350 million euros ($431 million) before tax—will enable BenQ to double its annual revenues to $10 billion, the company said, and catapult it out of relative obscurity into the world's top 10 mobile handset vendors.

BenQ will use the Siemens brand name for five years and will take over some high-profile sports sponsorship contracts, including one with star soccer team Real Madrid.

It will also take on 6,000 Siemens employees—half of whom are in Germany, where many have job guarantees until 2006 negotiated last year in exchange for longer working hours.

The company's headquarters will remain in Munich, Germany.

In return Siemens will acquire a 2.5-percent stake in fast-growing BenQ—Taiwan's top maker of computer equipment and mobile phones—with the issue of 50 million euros worth of new BenQ shares.

The companies did not disclose further financial details, but Siemens executives were due to meet with reporters and analysts' later on Tuesday. The deal is expected to close in the September quarter if approved by BenQ shareholders and competition regulators.

"With this partnership we have found a sustainable perspective for our mobile phones business. BenQ and Siemens complement one another ideally," Siemens Chief Executive Klaus Kleinfeld said in a statement.

Siemens investors welcomed the deal, as it brings an end to months of uncertainty over the future of the mobile-phones unit, which has been plagued by quality problems with its more expensive models and price pressure at the low end of the market.

The unit—Siemens' only remaining consumer business in a portfolio that stretches from turbines to trams—brought in 5 billion euros of revenues out of Siemens total of 75 billion in its last fiscal year, but made an operating loss of 152 million euros.

By 1141 GMT Siemens shares were trading 1.6 percent higher at 62.21 euros, leading the gainers on Germany's blue-chip DAX index, which was up 0.7 percent.

"It was clear that Siemens could not succeed with the mobile-phones unit. With this solution the issue is off the table. That will bring calm to the company and to the shares," said SES Research analyst Oliver Drebing.

AMBITIOUS BENQ

BenQ expects the merged mobile-phones unit to break even in 2006, Chief Financial Officer Eric Yu told a news conference, without elaborating on how the company planned to achieve this.

Yu raised BenQ's forecast for handset sales this year by 50 percent to 15 million units and said the company would introduce new BenQ-Siemens branded handsets in the fourth quarter.

BenQ said the deal would help it become the world's fourth-biggest mobile-phones vendor—ka position occupied by Siemens until last year, since when it has been overtaken by LG Electronics and Sony Ericsson.

But BenQ's shares closed down 2.7 percent at T$32.50 as investors said the company would have its work cut out to turn the business around.

"They have to rebuild the brand and its commitment," said analyst Aloysius Choong, of International Data Corp., noting that Siemens had somewhat neglected mobile phones while making up its mind what to do with the unit.

But he added: "It will certainly give BenQ more credibility as a handset manufacturer. They're still a relatively unknown name as far as handsets are concerned.

BenQ, which also makes consumer-electronics products such as digital cameras and scanners, will gain immediate access to Siemens' strong market positions in Europe and Latin America as well as to new technology it does not currently have.

"I am fully convinced that the acquisition provides many opportunities to strengthen our business in the consumer market and I am sure that our shareholders will share this opinion," BenQ's Chairman and Chief Executive K.Y. Lee, said in a statement.

The ambitious Taiwanese company, which is just three years old, is one of many Asian companies exploiting their manufacturing efficiencies and expertise to take over maturing product lines from U.S. and European companies.

This year so far, China's Lenovo Group has bought IBM's PC-manufacturing business and Taiwan's TPV Technology has bought the monitor-making unit of Dutch electronics giant Philips.

(With additional reporting by Doug Young in Shanghai and Ulf Laessing in Frankfurt)

Copyright © 2005 Ziff Davis Media Inc. All Rights Reserved. Originally appearing in eWEEK.