BenQ sees revenues rebounding this quarter after a slow start to the year

Although the handset vendor has seen its gross margins squeezed in recent quarters, it remains optimistic because of expected big shipments

BenQ Corp (明基), the nation's largest branded handset vendor, expects its revenue to rebound in the current quarter after posting declining revenue for two straight quarters this year, a company official said yesterday.

"We hope to see our third-quarter revenue grow by 10 percent quarter-on-quarter ... driven by growing shipments of higher-priced projectors, flat-panel displays and storage products," BenQ's president Sheaffer Lee (李錫華) told an investor's conference.

Better margins
In the meantime, gross margins are expected to return to double-digit levels, Lee said. BenQ's gross margin slid to 9.4 percent in the April-June quarter from 11.3 percent in the previous one, because of dropping margins on product lines like handsets and projectors, and weakening prices.

The company generated earnings of NT$480 million, or NT$0.19 per share, in the second quarter, up 58 percent from the previous quarter but down 84 percent from a year ago. Sales fell by 8 percent from the first quarter and were down 29 percent year-on-year to NT$29.7 billion.

Second-quarter revenue for mobile phones dropped more than 30 percent from the first quarter, after a 10-percent fall in shipments and weakening average selling prices as well as inventory cutbacks of its sales channels in the US that cost nearly US$20 million, Lee said.

BenQ surprised the market by announcing in June that it would take over Siemens AG's money-losing handset unit, with the German electronics giant to pay BenQ 250 million euros -- 85 percent of that in cash and the rest in the form of assets and technology -- and to invest 50 million euros in BenQ shares.

Despite a seemingly weakening mobile phone unit, "we will be transforming into a handset business-oriented firm after the acquisition," BenQ's chairman Lee Kun-yao (李焜耀) said yesterday.

Handset sales
Handset sales are expected to contribute between 55 percent and 65 percent of total revenue next year after the deal takes effect on Oct. 1 this year, the executive said.

BenQ and Siemens will start cross-selling of mobile phones through each other's distribution networks later this year, and the company expects to roll out co-branded handsets among the planned 35 new models next year, Lee Kun-yao said.

The company hopes to become a first-tier brand name worldwide by leveraging Siemens' branding advantage in over 70 countries around the globe, but analysts remained cautious about the synergy BenQ can enjoy through the partnership.

Challenges
"A challenging future is facing the company," said Vincent Chen (陳豊丰), an analyst with CLSA Ltd (里昂證券) in Taipei, adding that overcapacity is a big problem.

Siemens, which has plants in Shanghai, Brazil and Germany, and BenQ, whose manufacturing base is in Suzhou, have combined capacity of more than 60 million handsets, while BenQ ships only around 300,000 own-brand mobile phones per month with a declining contract manufacturing business, according to the analyst.

Merrill Lynch retained its "sell" rating on BenQ, on concern over the uncertainty of the acquisition as well as declining prices and margins for its product lines. The securities house cut the target share price to NT$27 while slashing its earnings per share (EPS) by 30 percent to NT$1.4 for this year.

BenQ shares closed down 3.67 percent at NT$32.85 yesterday before the second-quarter figures were released.

source: Taipei Times