BenQ Surprises By Spinning Off Branded Business

SHANGHAI — Taiwan's BenQ Corp. pulled a U-turn Wednesday, deciding to spin off its branded business instead of its manufacturing division in an effort to find firm footing after a disastrous attempt to morph into a handset heavyweight by acquiring the loss-riddled handset division of Siemens.

BenQ earns at least 60 percent of its revenue from contact manufacturing for the likes of Dell Inc. and Hewlett-Packard Co. Because that side of the business is larger, the company said it makes more sense to keep it as the core. After the spin-off, the larger manufacturing entity will take on a new name, Jia Da Corp., while the BenQ name will pass to the branded business.

"The scale of the branded business has become relatively small compared to our integrated manufacturing service business. Therefore, it is a straightforward decision to spin-off the branded business," said K.Y. Lee, chairman of BenQ. Lee will lead both of the new companies.

BenQ described the new branded business as a "fabless company with strong integration of 3C technology in the fields of product design, mobile communications, mechanical and material engineering, and network convergence technologies."

It said Jia Da Corp. will be a dedicated contract manufacturer for 3C products, with expertise in the fields of display, optoelectronic devices, mobile devices and infotainment solutions.

The decision to become an ODM brings BenQ full circle, and it's far from certain that the strategy will work in its favor. The ODM business is brutally competitive, and Lee once said that he didn't think it was a viable way to survive.

Analysts also seemed puzzled, saying the move was unlikely to deliver the firm from its troubles. "This new strategy doesn't seem to make a difference to the company, and it will still be hard for the firm to turn around," said CLSA analyst Vincent Chen.

BenQ announced the move the same day it disclosed another quarterly loss, albeit a much smaller one. BenQ posted a net loss of T$1.76 billion (US$53 million) for the first quarter, narrowing from a year-ago loss of T$5 billion and T$7.89 billion for the fourth quarter. The first-quarter loss was bigger than an average forecast for a T$1.47 billion loss from four analysts surveyed by Reuters.

BenQ also said it would reduce its balance sheet capital by around 40 percent to T$15 billion later this year from the current T$25.6 billion by deducting accumulated losses.

Note: Reuters contributed to this report.