BenQ says Siemens integration fine, but analysts worry

Analysts following BenQ ahead of its takeover of Siemens' mobile phone unit weren't very happy Thursday: one day earlier, the Taiwanese electronics maker said its August sales fell 21 percent compared to the same period last year.

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Sliding sales at BenQ mirror the situation at Siemens' money losing mobile phone operations, and declines at both companies mean successfully combining the operations will be that much harder to pull off.

The fear is the Taiwanese company won't be able to reduce costs fast enough to fend off losses, which could lead to a cash crunch. Compounding the trouble is German labor laws and unions, which make it difficult to reduce staff, one of the primary ways to boost efficiency after an acquisition.

"Siemen's costs are high, that's one big disadvantage," said Andrew Teng, an analyst at Taiwan International Securities in Taipei. Cultural differences between Germans and Taiwanese could also cause the integration to take longer than expected, he added.

Speed in integrating the businesses is essential to the success of the deal. Analysts estimate the companies have enough cash for a year of losses before they would have to start selling off assets.

August sales at BenQ dropped to NT$9.1 billion (US$279.6 million), compared to NT$11.6 billion in the same month last year, mainly due to slower than expected shipments of LCD (liquid crystal display) monitors, the company said.

The sales figure was roughly flat compared to July. But the company had earlier predicted its overall third quarter sales would rise 10 percent from its dismal second quarter performance, and the August figure showed no sign of that kind of improvement so far.

"(BenQ) needs to put its own house in order," said Dominic Grant, a senior telecom analyst at Macquarie Securities in Taipei.

"I am less optimistic about the acquisition today than I was (last month)," he added.

BenQ sounded an upbeat note about the coming acquisition in a statement released Wednesday. Key management appointments have been made and product roadmaps and branding strategies are close to being finalized, the company said. In addition, the companies are in the final stages of mapping out a new supply chain framework for the combined business, to improve sourcing efficiency.

"Taiwanese electronics makers are very good at cutting costs," said Teng, noting the deal could turn out well long term if the companies are able to overcome the integration and cash flow issues.

But BenQ will have to show solid improvement in its own business before market watchers feel the same confidence. Falling sales and a major company reorganization are just a few of the problems it faces. BenQ will also need to win customer confidence in the new BenQ-Siemens brand name, which will take time and plenty of marketing cash.

The company says sales should increase in September, as back-to-school PC purchases and new mobile phone models attract consumers.

But if the month turns out worse than expected, look for confidence in the Siemens mobile phone acquisition to further erode, analysts said.