June 7 (Bloomberg) -- Benq Corp., Taiwan's biggest mobile- phone maker, agreed to take over Siemens AG's unprofitable handset unit after the German engineering company lost 500 million euros ($613 million) from the business in the past year.

Siemens will book pretax costs of 350 million euros related to the unit's disposal in the quarter ending September, the Munich- based company said in a statement today. Siemens, Europe's No. 2 handset maker, will also buy 50 million euros worth of new shares in Taipei-based Benq, giving it a 2.5 percent stake.

The disposal accelerates Siemens's retreat from consumer electronics as the company focuses on industrial goods such as turbines, trains and automation equipment. Siemens follows other European manufacturers including Alcatel SA and Ericsson AB in giving up all or part of their businesses to Asian competitors to expand distribution networks and lower production costs.

``It's a shock ending,'' said Nicolas von Stackelberg, an analyst at Sal. Oppenheim Jr. & Cie. who advises investors buy Siemens shares. ``Siemens never understood the consumer business, and they were too focused on the low end of the market.''

Shares of Siemens rose as much as 1.29 euros, or 2.1 percent, to 62.50 euros and traded at 62.33 euros as of 9:13 a.m. in Frankfurt. Benq shares dropped 2.7 percent to NT$32.5 in Taipei.

Siemens settled for the disposal to Benq, which had 2004 sales of $5.2 billion, after talking to manufacturers including LG Electronics Inc. Benq will have the rights to use the Siemens brand for five years as part of today's agreement.

Chinese License

Benq said in its latest annual report said it planned to expand into developed and emerging markets such as India, Russia and China this year. The company will take over Siemens factories in Brazil and Germany as well as a Chinese plant at a later stage.

``Why invest so much money in an unprofitable business and a so-so brand?'' said Kuo Shou-ming, a Taipei-based fund manager of SinoPac Financial Holdings Co.'s Genesis Fund, which has $32 million in assets under management. Kuo sold Benq's shares earlier this year. ``Getting some manufacturing orders from Siemens is the only immediate advantage for Benq that I can think of.''

In April, Siemens said it would move wireless and cordless phones into a separate company to facilitate a partner search. The company said today it will keep the cordless phone business. The mobile unit employs more than 6,000 people and had sales of 5 billion euros last year.

Falling Share

Siemens has lost ground to rivals including Nokia Oyj and Samsung Electronics Co. who have been quicker to include features such as music players and faster Web access. In the three months through March, Siemens's market share fell to 5.5 percent, its lowest level since 1999, according to Gartner Inc.

Siemens in 1967 merged its household goods division with Robert Bosch GmbH and in the 1990s phased out production of consumer electronics such as televisions. The company also moved a personal-computer unit into a venture with Japan's Fujitsu Corp.

Last month, Alcatel sold its phone business to China's TCL Corp. Ericsson teamed up with Sony Corp. in 2001, the same year Royal Philips Electronics NV formed a Chinese venture.

Benq shipped 15.5 million phones in 2004, compared with more than 51 million phones shipped by Siemens in its fiscal year through September 2004.

``Our expansion strategy will be strongly supported by this deal,'' Benq Chairman K.Y. Lee said in a Siemens statement today. The company also makes MP3 players and laptop computers.

Reaching Targets

Siemens also said in April that it's become ``difficult to assess'' whether it can still achieve an increase in earnings this year after the fourth straight quarterly loss from mobile phones dragged down earnings and costs to turn around the remaining telecommunications businesses as well as the services unit rise.

Chief Executive Klaus Kleinfeld, who took over at the end of January as Siemens's first new CEO in 12 years, plans to move all 12 divisions within profitability targets set by Siemens within the next 18 to 24 months. Siemens has relied on earnings from medical equipment, automation and power generation as losses from phones widen and telecommunications customers scale back orders.

Benq, which employs about 14,000 people worldwide, has manufacturing operations in Taiwan, China, Malaysia and Mexico, according to the company's Web site. Phones counted for 11 percent of the company's sales in the first quarter.

This year, Siemens plans to introduce 15 new phones. The company earlier this year also said it wants to wring about 1 billion euros in cost savings from the business in coming years by cutting marketing spending and retreating from some markets.

Siemens first started selling mobile phones in 1986 with its 19 pound-heavy C1 model. An attempt to turn phones into fashion accessories backfired last year when Siemens scrapped its Xelibri handsets because the models failed to attract enough consumers.

Citigroup Inc. acted as an adviser to Benq.

To contact the reporter on this story: Benedikt Kammel in Berlin at bkammel@bloomberg.net.

Last Updated: June 7, 2005 03:14 EDT