Siemens may sell
its mobile division

8 Mar 2005

MUNICH: One of Europe’s largest companies, Siemens, is examining a number of options surrounding the future of its loss-making mobile division, which include selling the division off or entering into a partnership with another manufacturer in a move reminiscent of the Sony Ericsson alliance.

The company would not comment on rumours that it is in advanced negotiations with Chinese manufacturer ZTE.

Siemens’ €18bn communications unit is generally performing quite well in several sectors bar two — its fixed-line carrier and mobile phone businesses.

Lothar Pauly, president of the Group Board of Siemens Communications, confirmed that the mobile phone division is losing money and has posted losses for three quarters in a row. It also has lost market share worldwide, with Lucky Goldstar passing the company out and occupying the No 4 position worldwide.

Pauly said: “We are not playing in the Champion’s League in terms of the average selling price of mobile phones — the average selling price of our mobile phones has steadily dropped to a dismal €86. This is well below that of other European and Asian competitors — and this is not because of product quality. Our products are as good or better than the products of our competitors. No. The reason for this is our slow time to market. Again and again, late market launches have damaged our market position.”

Conceding that the company also has a lot of catching up to do in the area of 3G phones Pauly continued: “I am not amused about this situation at all. It puts the positive overall performance of Siemens Communications and of Siemens AG in a bad light. All my efforts will go into correcting this situation.”

Pauly said that all options available to the company — including a partnership with another manufacturer that would enable Siemens to focus on research and development and sales and marketing efforts — but emphasised that closing the mobile devices division is the most undesirable option because it would destroy a lot of value. “No matter what option we ultimately choose, whether we partner, whether we sell the business or engage in some form of co-operation, we will have to fundamentally fix the mobile phones division as a whole.”

Among the actions being taken include a €600m cost-cutting programme. Urging journalists not to “bury the Siemens mobile phone just yet” because newer products are still being introduced at this week’s CeBIT event in Hanover, Pauly revealed that the company will be laying the foundation for a new Linux-based software platform for the next generation of Siemens mobile phones.

“A systematic analysis of the situation has clearly shown that measures to improve the average selling price will have the greatest impact on profitability. And the average selling price is closely related to the ability to launch the right product at the right time,” Pauly said. It subsequently emerged — during a briefing that Pauly had to leave briefly due to a stomach upset related to blood pressure — that the average selling price being targeted by Siemens will be €172.

Despite pledging Siemens’ commitment to the mobile market, Pauly had a poor outlook for the overall market going forward. “The mobile phone market is not likely to see spectacular growth rates in the future. It’s already a huge, saturated and extremely competitive market — especially in Europe. It will grow in volume rather than value … The trend is towards mobile phones with unique design and features,” Pauly said.

By John Kennedy