In November 2006, BenQ Corp. (BenQ) announced that it would cut 400 jobs at its Shanghai, China plant. This unit had belonged to the mobile devices division of Siemens AG (Siemens), a major German engineering and electronics company, up until October 2005, when it, along with plants in Germany, Brazil, etc., and R&D labs in Germany, Denmark, and China were sold to BenQ. After acquiring the division, BenQ renamed it BenQ Mobile GmbH (BenQ Mobile). BenQ Mobile had, in September 2006, filed for bankruptcy protection after a year of heavy losses. BenQ was a prominent Taiwanese electronics and computer peripherals manufacturer. As of 2005, it was also the sixth largest manufacturer of mobile phones in the world.
Though it largely acted as an OEM for global brands like Nokia, Motorola, etc., it also sold mobile phones under the BenQ brand. The company had big plans to expand its operations and build its brand all over the world.
In October 2005, it acquired the loss-making mobile devices division of Siemens. With the acquisition, BenQ planned to sell co-branded mobile phones (BenQ-Siemens) in addition to the BenQ and Siemens brands. Siemens started manufacturing mobile phones in the late 1990s. Despite producing high quality phones, it was unable to make a mark in the highly competitive industry, and the business began incurring huge losses. In 2005, after yet another year of losses in the mobile phones business, Siemens decided to exit the business. However, securing the future of its employees was high on its list of priorities. Therefore, it looked to sell the division to a company that would assure the continuity of the division's operations in Germany
In June 2005, BenQ acquired the entire mobile division which comprised the company's manufacturing units in Germany, Brazil, and China. However, the acquisition brought a range of problems for BenQ. The company failed to turn around the bleeding German unit, which incurred losses of € 840 million within a year and threatened to destabilize the parent company.
The loss was attributed to BenQ's lack of management and marketing experience as well as to the tough German labor laws that prevented BenQ from laying off people. Consequently in September 2006, BenQ Mobile filed for insolvency.
This affected around 3,000 German workers who were abruptly asked to leave without any compensation. The labor issue attracted widespread criticism against BenQ and Siemens, with German labor leaders and politicians alleging that BenQ's acquisition of the Siemens' mobile division was a carefully scripted plot by the two companies to avoid compensation payments to the workers, which ran into millions of euros.
Acquisition
In April 2005, Siemens' mobile devices division reported worldwide sales of 9.3 million units and US$ 179 million in losses for the first quarter of 2005. With a turnaround seeming impossible to achieve, Klaus Kleinfeld (Kleinfeld), the CEO of Siemens, announced that Siemens was looking to sell the mobile devices division. He also stated that Siemens might retain a minority stake in the division.
However in June 2005, BenQ announced that it had acquired the whole stake in Siemens' mobile devices business. It renamed the division BenQ Mobile GmbH (BenQ Mobile). The acquisition, effective from October 1, 2005, created one of the world's largest mobile handset makers.
BenQ Chairman & CEO, K.Y. Lee (Lee) said, "With the acquisition of Siemens's mobile phones business, we are rapidly approaching our goal to become one of the world's leading players in the mobile phone industry.
Post-Acquisition
In the months following the acquisition, several problems emerged. In early 2006, BenQ Mobile undertook a series of cost-cutting measures; it closed down a design center in Ulm, Germany, sold the research and development facility in Aalborg, Denmark to Motorola and brought all research and development work to Munich.
The company estimated that these measures would reduce expenditures considerably and it would be able to make a profit in the fourth quarter of 2006. The first BenQ Siemens brand mobile phones were unveiled in January 2006.
Aftermath
The bankruptcy of BenQ Mobile and the consequent loss of about 3,000 jobs created a furor in Germany. Both Siemens and BenQ were held responsible for the debacle. The German public felt that Siemens was guilty of creating false hopes that the loss making unit would be saved. "From an economic point of view, Kleinfeld perhaps acted in the correct manner, but his reputation as someone who can turn around companies in a tough but always fair way has been lost," said an editorial in Financial Times Deutschland. There were also reports suggesting that Siemens sold the division because closing it down would have tarnished its reputation.