The spinoff was announced after a board of directors meeting held April 25. The parent company, BenQ, would be renamed Jia Da Corp. and focus on contract manufacturing of computer-, communication- and consumer-related electronic products, reported an April 25 company statement.
BenQ Corp., meanwhile, would become a wholly owned subsidiary of Jia Da and focus on the brand businesses which, the company claimed, were simpler than ODM. "After the discontinuation of funding for the German mobile phone subsidiary, BenQ's branded business structure has become less complicated, and 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," BenQ Corp. Chairman Lee Kun-yao claimed in the company statement.
BenQ suffered great financial losses since its acquisition of Siemens' cell phone division in September 2005. According to that deal, BenQ acquired Siemens on a debt-free basis and obtained Siemens' capital of around US$341 million to finance BenQ's R&D, technology transfer and marketing. BenQ's takeover of 6,000 Siemens employees and the division's sluggish sales resulted in a loss of around US$810 million between October 2005 and June 2006, according to a Sept. 29, 2006 report in the Chinese-language Liberty Times.
Although the deal transformed BenQ into the fourth-largest handset maker in the world, this advantage did not offset continuing loss of revenues. According to the company's Web site, BenQ lost around US$600 million overall during the first three quarters of 2006. Seeing no chance of turning a profit in the short term, BenQ announced in September 2006--just one year after the acquisition--that it would stop its investment in the joint brand established with Siemens. BenQ Mobile GmbH & Co. OHG--BenQ's German subsidiary--then applied to the German courts for insolvency protection in December 2006, a process that is still under review.
To offset these losses, BenQ sold assets, such as land in northern Taiwan's Gueishan Industrial Park last October, as well as shares, such as those of Gallant Precision Machining Co. Ltd. last October, and subsidiaries Airoha Technology Corp. last December and AU Optronics Corp. in March. In the first quarter of 2007, the company was still burdened with an after-tax net loss of US$53 million.
To raise the company's net worth, the corporate spinoff was accompanied by a planned capital reduction of Jia Da by 40 percent, the Chinese-language Economic Daily News reported April 26. This was expected to help the company write off losses caused by the mobile phone business in 2006, the report said, adding that shareholders attending the April 25 corporate day showed optimism about the spinoff and capital reduction. BenQ's share price in the Taiwan bourse grew by 0.9 percent April 26, the trading day after the news was released.
In related news, Lee was listed among defendants suspected of insider trading in April. The Taoyuan District Prosecutors Office raided BenQ's headquarters in Taipei and Taoyuan in March to collect evidence related to sales of around 7 million company shares in the first quarter of 2006. Lee was summoned by prosecutors April 11, following which he was released on bail of around US$450,000, the Chinese-language China Times reported April 12.
Write to Annie Huang at shihyin@mail.gio.gov.tw