Sept. 28 (Bloomberg) -- Benq Corp., Taiwan's biggest mobile-phone maker, will file for insolvency protection of its German handset unit less than a year after taking over an unprofitable Siemens AG division.

Benq's board decided today to discontinue funding to the unit, Benq Mobile GmbH & Co., the company said in a statement. Taipei-based Benq also said its mobile-phone units in Brazil and other locations are reviewing their financial positions. The German unit employs about 3,000 people.

``The German unit will definitely file for insolvency protection at a court in Munich in the next couple of days,'' said Stefan Mueller, a spokesman for the unit. ``We checked our books and the stop of funding doesn't give us any choice.''

Benq estimates it has lost 600 million euros ($762 million) in the mobile division since taking over the Siemens unit in October last year. After forecasting the mobile unit would be profitable by the end of this year, Benq pushed back the target to the third quarter of 2007 at the earliest because of slower- than-anticipated sales. Siemens paid Benq to take over the handset unit after failing to turn it around.

``Many experts thought that Benq would be able to turn Siemens' former mobile-phone business around with its consumer electronics experience,'' said Theo Kitz, an analyst at Merck Finck & Co., who has a `buy'' rating on Siemens shares. ``But they failed as the new mobile phones apparently don't strike a note with consumers.''

Benq also makes notebook computers, DVD recorders and digital projectors.

`Siemens's Fault'

Siemens, which sold its first mobile phone two decades ago, decided to pay Benq 250 million euros to take on the unit after losses mounted and its market share shrank. The German company also bought a 2.5 percent stake in Benq for 50 million euros.

``Siemens Mobile was once a successful and thriving business and today's disaster is mainly Siemens's fault,'' said Wolfgang Mueller, a union member at Siemens' supervisory board, in a phone interview today. ``The management failed to develop the right products and when the unit became unprofitable, Siemens decided to sell instead of fixing the problem.''

Benq is cutting jobs and focusing on higher margin models that can download games and music to compete with Nokia Oyj and Motorola Inc., the world's biggest handset makers.

`In Control'

Benq's overall ``loss in the fourth quarter will be in control,'' Yu said at a press conference in Taipei. ``It won't be a big loss because we will stop accounting for the German unit.'' Fourth-quarter operating expenses at the mobile unit may fall as much as 90 percent, Yu said, without specifying figures.

The German unit, with offices in the cities of Bocholt and Munich and a factory in Kamp-Lintfort, accounted for 20 percent to 30 percent of Benq's handset shipments in the second quarter, Yu said.

Benq said it will continue its own-branded handset business in ``selected markets.''

Shares of Benq rose 3.7 percent to NT$18.2 in Taipei today and have dropped 31 percent in the past six months. The announcement was made after the market closed at 1:30 p.m.

Benq plans to close its handset factory in Taoyuan, Taiwan, and transfer the production to overseas plants, David Huang, head of investor relations, said on Sept. 21.

Yu said research and development facilities in China and Taiwan, as well as two factories in the eastern Chinese cities of Suzhou and Shanghai, won't be affected.

Third Straight Loss

Benq on Aug. 25 reported a third straight loss in its quarter ended June 30 because of handset delays and increased marketing costs after taking over the Siemens unit.

The mobile-phone division accounted for 36 percent of second-quarter sales, rising from 35 percent in the first quarter and 9 percent a year earlier.

Computing products, including liquid-crystal display monitors and notebooks, contributed 53 percent of revenue, slipping from 57 percent in the previous quarter and 80 percent a year earlier.

To contact the reporter on this story: Theresa Tang in Taipei at ttang3@bloomberg.net; Simon Thiel in Munich at sthiel1@bloomberg.net

Last Updated: September 28, 2006 12:06 EDT