Siemens Shanghai Mobile Communications Ltd will outsource a larger portion of its mobile phone business in order to cut costs at a time of increasing competition in the Chinese handset market, company officials said yesterday.

"Until now, outsourcing has occupied about 30 percent of our total mobile phone business and that figure will climb to 50 percent in the near future," said Peter Borger, the firm's chief executive officer.

During the fiscal year that ended last September, Siemens Shanghai Mobile produced 14 million handsets and posted 12 billion yuan (US$1.45 bil-lion) in sales.

The company exported 8 million handsets worth US$510 million that year, making it the city's fifth-largest exporter.

Its exports during the first six months of 2003 were worth US$320 million.

"But we are facing growing competition pressure in China," said Lothar Pauly, director of Siemens Infor-mation and Communication Mobile Group.

While sales revenue from its mobile phone business continues to rise, its profit margin is narrowing, industry insiders said.

The average price of handsets in China fell during the first half of this year to 1,767 yuan, a drop of 13.2 percent from the same period of 2002, according to IT industry consultant CCID Consulting Co Ltd.

CCID also predicted that competition in the domestic mobile phone market will be even more heated in the second half of this year, and most companies will be forced to make further price cuts.

As a result, Siemens Shanghai Mobile said that the company will put more energy into the research and production of network equipment for third genera-tion mobile communication.

Siemens Shanghai has invested US$30 million to build a plant to make network equipment based on the Wideband Code Division Multiple Access, or W-CDMA, standard.

The company declined to reveal more details about the plant because 3G licenses haven't been released in China yet.

While analysts agree outsourcing will help Siemens cut labor and real estate costs, they question the company's move into third generation technology.

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