Siemens to spin off ailing mobile division

Siemens has finally decided to divest itself of its loss-making mobile phone business.

Siemens' communications business posted a €19m overall loss for the second fiscal quarter of 2005, thanks largely to the €138m loss made by its handset division - nosediving from its €13m profit in the corresponding period in 2004.

The number of handsets sold also dropped year-on-year: down from 12.8 million in Q2 2004 to 9.3 million for the same quarter this year. According to analyst house IDC, Siemens has now slipped to sixth place in the handset manufacturer ranking, losing its former fifth place spot to Sony Ericsson.

CEO Klaus Kleinfeld announced that the mobile unit will be spun off from the company's Information and Communications unit into a separate entity, a move that he expects to see attract a partner for the business.

The announcement has long been expected, with CEO of Siemens Communications, Lothar Pauly announcing a review of the unit's future in February at the 3GSM trade show.

"Both the old and the new CEO [of Siemens group] made it clear that we are evaluating all four options: partner, sell, fix or close," said Pauly. "We don't want to close it. It would destroy too many values."

The restructuring will take place over the next three months, Siemens confirmed, with the new unit also covering cordless phones and other consumer devices, including set-top boxes and routers.

Siemens is already rumoured to have entertained talks with a potential partner or partners, who will take a majority stake in the venture. Despite the expected change of ownership, the phone business will retain the Siemens brand name.

Motorola declined to comment on whether it was considering a joint venture with the company.

Whoever the new partner will be, analysts believe the move is going to be a good one for the German firm.

Ovum research director, Henning Dransfeld, said in a research note: "The Siemens Communications group is making a lot of concessions to get its house in order. If its new form attracts another party with strengths in mobile design and weaknesses on fixed consumer products, the consumer devices business could start moving under full sails again."