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TAIPEI, Aug 18 (Reuters) - BenQ Corp. (2352.TW: Quote, Profile, Research), Taiwan''s top maker of computer gear and cellphones, reported an 84 percent drop in quarterly profit, due to low selling prices, but was cautiously optimistic on its third quarter. By introducing more own-brand products that have fatter profit margins during the annual peak export season, BenQ forecast third-quarter sales would rise more than 10 percent from the second quarter''s T$29.7 billion ($925 million). Full-year net profit is expected to halve to around T$3.6 billion, according to Reuters Estimates. "Sales of higher-end, bigger-screen LCD monitors will increase, so the ASP will go up again," President Sheaffer Lee told an investor conference, referring to average selling prices. In past months, BenQ sold LCD (liquid crystal display) monitors at a lower price following a fall in LCD panel costs. BenQ, a supplier to top PC vendors like Dell Inc. (DELL.O: Quote, Profile, Research) and Hewlett-Packard Co. (HPQ.N: Quote, Profile, Research), earned net profit of T$480 million for the quarter ended June 30, versus T$2.97 billion a year earlier and T$300 million in the first quarter. The result was better than a median forecast for T$298.0 million by Reuters Estimates. "But, to be honest, while there is some upside for major products like LCD monitors, TVs and projectors, we are still conservative on the handset business," Lee said. Reflecting intensifying competition in the handset industry, mobile phones made up 8 percent of BenQ''s total revenue in the second quarter, down from the first quarter''s 11 percent and far lower than a fifth a year earlier. SIEMENS DEAL The Taiwan company agreed in June to take over Siemens AG''s (SIEGn.DE: Quote, Profile, Research) loss-making mobile phone unit to beef up its presence in the highly competitive sector, and expects the merged mobile phone unit to break even next year. Merrill Lynch said it did not expect the acquisition to break even until 2008, and on Monday cut its forecast for BenQ''s operating profit by 50 percent for both 2005 and 2006. "For the bottom line, the second-quarter result was a big disappointment to us and its share price will head south," said Merrill analyst Tony Tseng. "Sales in the third quarter could grow like the company has said, but margins are still key." BenQ''s president said he was confident the gross profit margin, which was 9.4 percent in the second quarter, would return to double digits in the third quarter. First-quarter margin was 11.3 percent. BenQ shares closed down 3.67 percent at T$32.85 ahead of the results, underperforming a 0.59 percent fall on the main TAIEX index. The stock has risen 6.1 percent since June 7, when it announced the Siemens deal, against the big board''s 1.6 percent gain. While analysts say BenQ will have a tough time turning around the unit, the Siemens deal, which will be closed later this year, catapults the relatively obscure Taiwan firm into the world''s top 10 handset makers. (() | 
