German conglomerate Siemens AG will definitely hold on to its handset business and has no intention of selling, an official with Siemens (China) told China Daily yesterday.

"Our company is working on a reshuffle for the unit and new strategies will be introduced to help reverse the handset business," said the official who refused to be named.

"We are not going to sell the unit, but are seeking cooperation," he said.

The official did not disclose a timeframe for the unveiling of the new strategies.

In sharp contrast, rumors have recently surfaced that Siemens are in negotiations with foreign and domestic handset makers on a possible purchase plan, including Bird Co, LG, NEC and Motorola.

Analysts believed the loss-making handset business to be the basis of the rumors.

Siemens' latest quarterly report released last Friday showed that its formerly lucrative handset business is struggling both in China and worldwide.

According to the report, the firm's mobile devices business (formerly mobile phones) saw sales plummet to 1.17 billion euros (US$1.52 billion) from 1.486 billion euros (US$1.93 billion) year-on-year, and lost 143 million euros (US$185.9 million) compared to a profit of 64 million euros (US$83.2 million) a year earlier.

Unit volume in the Christmas quarter stood at 13.5 million handsets, down from 15.2 million in the corresponding period in 2003, and the average sale price also declined year-on-year, from 98 euros (US$127) to 86 euros (US$111.8).

According to Siemens CEO Heinrich Pierer, the company will strategically reorientate its business activities to better the performance of the unit over the full fiscal year.

In a trip to Beijing last month, Pierer stressed that Siemens' handset unit is still the key business of the corporation.

He also said that Siemens AG would either turn around, close or sell the unit.

But reports that he might announce a decision at an annual shareholders meeting in late January were misguided, he said.

During his stay in Beijing, he said the company would enhance cooperation with its local partners on the back of the overwhelming business opportunities in China, but he declined to comment on rumors Siemens may sell its loss-making global mobile phone business to Bird, the country's largest homegrown mobile phone maker and Siemens' marketing partner.

His remarks were echoed by Xu Lihua, president of Bird Co.

"We are not strong enough to purchase Siemens' handset business," he told China Daily.

Xu also admitted that the two companies were in negotiations to step up their cooperation.

"We are aiming to set up a joint research institute to enable us to cooperate in the area of technology," he said.

In June, Bird finalized a deal with Siemens to collaborate in the selling of the two firms' handsets in the domestic market.

Nevertheless, analysts did not rule out the possibility that Siemens will seek partnerships with other handset makers, as the company is banking on cooperation with domestic manufacturers to turn the tide for its handset business in China.

But Siemens is not alone in encountering difficulties in the handset market, as both domestic and other foreign firms found the going tough last year.

In an attempt to consolidate its position, Alcatel, for example, teamed up with TCL last September in Hong Kong to jointly enhance their handset businesses.

Figures from Analysys International showed that Siemens was kicked out of the world's top 10 of best GSM handsets in the second quarter of last year.

Siemens commands only about 2 percent of the Chinese market, compared to the 18 percent of Nokia.

(China Daily February 2, 2005)