BenQ banks on LCD

|~|Chang,-Adrian200.gif|~||~| Electronic Channel News:How does the Middle East factor in BenQ’s strategic plan?

Adrian Chang:The Middle East offers huge commercial potential for our business. The Middle East and Africa boasts a massive population base that is growing exponentially. This is having a positive effect on consumer markets in both regions.

The population demographic is also very youthful across the region. These young consumers are very interested in new technologies, which create major opportunities for businesses like ours Dubai offers an ideal location as a base for tackling these markets. It is truly the commercial gateway to the Middle East and Africa.

ECN:BenQ has traditionally specialised in IT products. What is the company’s strategy for expanding its presence in the consumer electronics market?

AC:We introduced our LCD TV range around 18 months ago in the Middle East and it’s proven very successful.

Our strategy has involved locating key consumer-focused channel partners in the region and working with them to expand our retail presence.

We have also focused on developing unique features and aesthetic designs for our LCD TV range.

ECN:Given that the Middle East falls under the control of your Asia Pacific operations, how do you develop a core brand strategy, given the disparate nature of respective markets across the region?

AC:We take a global approach to brand strategy, not a localised one. You have to produce products that boast specific features that appeal to all consumers. We work to define the personality of the BenQ brand as a high-quality alterative in a crowded market sector.

ECN:So what is the more important market sector for the future of BenQ? IT or consumer electronics?

AC:We are taking what we call a ‘Five C’ strategy to increasing the scope of our business. Key to this is expanding our presence in the LCD panel market as a major manufacturer. We have invested around US$7 billion in this business to date, and have committed a further US$2 billion in research and development funds over the next 12 months.

As a result, the vast majority of products we are developing are display-centric, including mobile phones. Around 11% of all LCD screens used in mobile phones are being produced by our subsidiary AU Optronics, and more than 25% of all LCD panels used in digital cameras.

We supply LCD panels to every sector of the market, and our research suggests that demand is set to explode as new applications are developed that require the technology.

We expect that in the near future, every new passenger vehicle sold will boast an average of seven unique LCD panels, which will provide huge commercial opportunities for our business.

Convergence is blurring the line between IT and consumer electronics. Mobile handsets and consumer electronics appliances like PDAs and even TVs are becoming increasingly reliant on traditional IT technology.

Converged networked devices based on IT technology represents the future of consumer electronics and we believe we are perfectly positioned to take advantage of the commercial opportunities this has to offer.

ECN:How has BenQ been affected by the price fluctuations that have impacted the LCD panel market over the past six months?

AC:The price drop was to be expected really…

ECN:But how difficult has it been to operate in the market given the influx of new competitors and patchy consumer demand for LCD TVs?

AC:We have the core technologies, which provide us with a commercial edge over our competitors in the consumer market.

Take LCD TVs for example: the LCD panel accounts for more than 85% of the cost of the television itself. LCD panels account for around 40% of the manufacturing cost of mobile phones, and a similar figure for digital cameras. LCD panels rank as one of the most expensive components in consumer electronics products today.

The LCD panel-manufacturing sector has been hit hard by price fluctuations. It’s not all bad news however; in recent times prices have actually been rising. Yet, the overall trend is towards cheaper prices with higher specifications.

There is a magic price point, and as long as we can keep hitting that mark while providing key features, we will continue to enjoy strong sales in the consumer sector. At the end of the day, consumers are benefiting from this increased competition.

ECN:The FIFA World Cup failed to generate the expected consumer demand for flat panel displays. How did this impact BenQ’s business?

AC:There were a few panel manufacturers who were too optimistic about how much business the event would generate, and ramped up their capacity as a result.

LG Philips for one recently announced a huge loss for the quarter. But we’re still making money because we took a considered approach to the business.

Ultimately, while the event did not generate the demand we expected for flat panel TVs, it did result in huge demand for our digital projector range.

ECN:What new products does the company plan to release over the next 12 months?

AC:In terms of mobile phones, we are planning to expand our range of OLED-based handsets over the next 12 months. BenQ was the first company in the world to develop OLED panels, which don’t require backlighting and provide key gains in terms of efficiencies.

In terms of the development of LCD displays, we are turning our focus to the development of ‘smart panels’, which feature integrated circuitry. We currently hold 4000 patents on this technology.

Digital projectors represent another of our core strengths and we are expecting major growth in this segment over the next 12 months.

We are currently the number two projector vendor in Europe and number three in the Asia Pacific (including the Middle East). Our goal is to become the number two vendor in this segment worldwide by the end of 2007.

We recently secured a deal to supply 4000 projectors to a client in Turkey and are working on similar deals across the Middle East. The home cinema market is booming, particularly in the GCC.

ECN:Are you looking to employ new channel distribution strategies in support of these products?

AC:We are not planning to expand our current distribution network, although we will work with our existing partners to ensure these products receive the desired marketing support at retail.

ECN:BenQ’s takeover of Siemens Mobile has not been without its issues, particularly in regards to the integration of the company’s operations into BenQ’s corporate structure. What are the latest developments?

AC:We are still merging certain elements of Siemens Mobile’s operations into our corporate structure. It does not mean that we have discarded Siemens’ way of working entirely however. We are working to take the best elements of both companies and combine them to create a new BenQ-Siemens ethos.

In Dubai for example, we recently relocated former Siemens Mobile’s staff to our new BenQ headquarters in the Airport Free Zone, which has created a new team spirit within the organisation.

It also ensures our staff is literally closer to the market, just by virtue of the geographical location of the new office compared to Siemens Mobile’s old offices in Dubai Internet City.

Of course there are greater implications regarding the integration of the two companies’ operations globally. Before we finalised the acquisition, we committed significant resources to identifying how and why Siemens Mobile was losing close to EU1 million each day.

This was key to our strategy to turn the business around as quickly as possible.

We concluded that unlike Siemens Mobile, our strengths lie in our manufacturing capacity and our ability to get product to market without delays.

Siemens Mobile was paying huge amounts to its OEM partners and component suppliers to manufacture its products.

In some cases, Siemens was paying double what BenQ pays to the same supplier for the same components, mainly because the company’s purchasing power – in terms of sheer numbers – was insignificant compared to BenQ’s.

So for the first six months following the takeover, we concentrated heavily on ensuring cost savings in terms of procurement.

We have also worked to reduce the costs associated with research and development (R&D). Previously, Siemens Mobile operated around 14 R&D facilities in eight countries worldwide, which created major problems in terms of coordinating projects between the various operations.

Even fundamental factors like language barriers and cultural differences impacted the workflow and created stumbling blocks in terms of the company’s overall vision for product development.

Our main aim was to simplify this process. We now delegate certain projects to one or two sites, rather than multiple sites.

ECN:Does this process of rationalisation extend to your handset portfolio?

AC:Absolutely. Instead of the 40 or 50 phones marketed by Siemens Mobile, we are aiming to develop around 20 handsets that target specific sectors of the market and are very focused in terms of design.||**||