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Siemens to spin off loss-making phone unit

Handset divison drags down group earnings - again

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Siemens' troubled mobile phone business once again pulled down the group's quarterly income, making it "difficult to assess" the group's anticipated FY2005 income gain, CEO Klaus Kleinfeld admitted yesterday.

The upshot: the handset unit will be formed into a separate operation, the better to sell or float it off.

Reporting group financial performance for the three months to 31 March 2005, Siemens' second quarter, the company said its net income fell to €781m ($1bn) from €1.21bn ($1.6bn) a year ago, a fall of 35.5 per cent.

Sales, by contrast, rose 4.3 per cent year on year to €18.6bn ($24.1bn).

The mobile phone division lost €138m ($178.5m) during the quarter on the back of a 30 per cent year-on-year fall in sales, to €842m ($1.1bn). Siemens' communications products group, of which the handset unit is a part, lost €19m ($24.6m) as a whole.

Kleinfeld said he will restructure the handset unit as a separate business, declaring he is "positive" he will find partners - buyers, in other words - for the unit. If he finds one, Siemens is "unlikely" to retain a majority share in the operation, Siemens' CFO, Heinz-Joachim Neubuerger, said. The restructure will take place in one to three months' time, Neubuerger added.

Mobile phone sales are slowing around the world, a trend that's hitting Siemens particularly hard. Between Q1 2005 and Q1 2004, the company lost 2.8 percentage points of market share, to 5.4 per cent, according to Strategy Analytics numbers released yesterday. All other major vendors raised their market shares year on year.

Siemens' phone unit has been the subject of sale speculation since late last year, though rumoured acquisition/merger partners, from China's Ningbo Bird to South Korea's LG, have subsequently stated they have no interest in the loss-making German business.

Earlier this year, Kleinfeld, who took over the CEO's post in January, said he was considering either a sale or a spin-off of the mobile phone unit. Then, in March, the group said its strategy was to cut costs at the unit to bring it back to profitability. ®

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