June 7 (Bloomberg) -- Siemens AG, Europe's second-largest mobile-phone maker, said Taiwan's Benq Corp. agreed to take over its unprofitable mobile-phone unit after 500 million euros ($613 million) in handset losses forced it to give up the business.

Siemens will take a pretax charge of 350 million euros related to the disposal of the business and will buy 50 million euros worth of new shares in Benq, the Munich-based company said in a statement to the Frankfurt exchange today. Benq is Taiwan's biggest mobile-phone maker.

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 Royal Philips Electronics NV and Ericsson AB in teaming up with Asian competitors to expand their distribution network and lower production costs.

``It's a relief, but there's still a long and winding road ahead for Siemens because the benefits from the overhaul will only become visible at a later stage'' said Joerg Schaefer, a fund manager at AMB Generali Asset Management, which manages $6.5 billion and holds Siemens stock. He spoke before the announcement. ``Consumer goods never fit with the rest of their business.''

Siemens settled for the disposal to Benq, which had 2004 sales of $5.2 billion, after talking to manufacturers including LG Electronics Inc. Siemens in the past also relied on technology provided by Motorola Inc. for third-generation phones.

Chinese License

Taipei-based Benq said in its latest annual report that it will be ``expanding market coverage from developed to emerging markets such as India, Russia and China'' this year.

Last month, China's government granted Benq, Inventec Corp. and two Chinese companies licenses to make a combined 14 million handsets a year. China is the world's largest cell-phone market with about 353.7 million users, according to its Ministry of Information Industry.

``If you are trying to sell a Benq phone in a Vodafone shop in London, having the Siemens brand is a big help,'' said Ben Uglow, an analyst at Morgan Stanley, who rates Siemens ``overweight.'' He spoke before the announcement.

In April, Siemens said it will move wireless and cordless phones into a separate company to facilitate the search for one or more partners. The company at the time said it wouldn't seek to hold a majority in the business, which employs about 10,000 people and generates sales of 5.5 billion euros.

Exiting Businesses

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.

Philips created a Chinese venture for mobile phones in 2001, the same year Ericsson teamed up with Sony Corp. Last month, France's Alcatel SA sold its phone business to China's TCL Corp.

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.

K.Y. Lee, chairman of Benq, said on April 28 that the company wants to be ``a global brand name.'' Sales of its own-brand products, which include MP3 players, laptops and mobile phones, accounted for 37 percent of the company's total revenue in 2004.

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.

Reaching Targets

Chief Executive Klaus Kleinfeld, who took over at the end of January as Siemens's first new CEO in 12 months, 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.

Kleinfeld last year orchestrated the combination of Siemens's fixed-line and wireless telecommunications divisions, creating a unit with 60,000 employees and more than a fifth of total revenue.

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, which first started selling mobile phones in 1986 with its 19 pound-heavy C1 model, has lost ground to rivals who have been quicker to include features such as music players and faster Web access. 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.

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

Last Updated: June 7, 2005 01:51 EDT