Siemens to go strong on Asian handset sales

Sarah Knight and Sabine Bub

FRANKFURT/MUNICH: German technology group Siemens AG, which is in talks to
find a partner for its struggling mobile telephone production unit, said on
Wednesday it was focusing on increasing its handset market share in Asia.

Siemens' goal is to be the number three mobile phone maker in all of its
Asian markets, a position it currently holds only in China, according to a
company spokesman. On Wednesday, Siemens management board member Volker Jung
indicated the company may be more willing to partner its handset unit with a
company in Asia, where GSM technology on which its phones are based is the
standard, than in the United States.

The Financial Times Deutschland reported Jung as saying a joint venture with
a Japanese company "usually holds longer than with an American one".
Speculation has been mounting about Siemens' partner strategy after it slipped
to fifth from fourth in world handset sales and posted the second quarterly loss
at its mobile phone unit ICM.

"We wants to secure the third slot (for handsets) in all Asian
markets," Siemens spokesman Peter Gottal told Reuters, adding that the
company would still keep an eye on the United States. "As soon as GSM takes
hold in the United States, we will have a bigger chance for our mobiles,"
he said.

In the US moves are just beginning to establish the GSM (global system for
mobile communications) standard as a successor to TDMA (time division multiple
access) and rival to CDMA (code division multiple access). Cingular Wireless,
the second largest wireless carrier in the US, and AT&T Wireless Services
Inc, the number three, recently said they would convert their networks to GSM.

Analysts agreed that consolidation in handsets is likely, as aside from Nokia,
no other handset makers are making real money. A slowdown in demand, stiff
competition and low margins are pointing to the need for economies of scale,
they argued. "My guess is they (Siemens) will find a partner," said
Peter Reilly, an analyst at Deutsche Bank in London. "There are a number of
companies not making returns in the handset business."

Possible partners

NEC, Matsushita's Panasonic and Korea's Samsung could each provide Siemens
with volume to help it raise its 7-8 per cent market share closer to Nokia's
34-35 per cent -- which its existing partner in third-generation handsets
Toshiba can not do, analysts said.

In addition, the Asian players understand consumers, and are strong on
brands, product-feel and design, they added. "For me there are only two
possible partners," said Frank Rothauge, an analyst at Sal. Oppenheim in
Frankfurt. "NEC has innovative products and is well positioned as the
market leader in Japan, while Panasonic would be even better with a brand name
that is known in the United States."

Siemens already has a joint venture with NEC in the area of UMTS (Universal
Mobile Telecommunication System) network equipment. UMTS allows users fast
access to the Internet. Other analysts favored Korea's Samsung Electronics Co
Ltd. Samsung would give Siemens economies of scale, product feel and branding as
well as a CDMA product offering.

CDMA is currently the dominant standard in the US and is due to be introduced
in China alongside GSM next year.

Motorola is strong in CDMA, though it does have GSM handsets and some
analysts favored a link up with the world's number two, even though talks are
reported to be on hold. With a 15 per cent share, Siemens would gain scale and
access to the US. In turn, Motorola could benefit from Siemens' distribution
network and brand power in Europe, analysts said.

Whether a joint venture is the answer for Siemens in handsets remains to be
seen. Some argue that it should concentrate on networks and exit peripheral
businesses such as handsets. Others say ventures are risky, pointing to failed
tie-ups between Sony and Qualcomm, and Lucent and Philips. The first joint
products from Sony and Ericsson's venture are expected to be released in nine to
12 months.

(C) Reuters Limited.