Siemens is to sell its loss-making mobile phone unit to Taiwanese technology firm BenQ.
The German firm's mobile unit has been struggling
No price was announced, but the German giant said the sale would cost it 350m euros ($429m; £235m) in 2005.
The deal sees Siemens take a 50m euro stake in BenQ, which will retain rights to the Siemens brand for five years and supply phones to the German firm.
The mobile unit has long been a key weakness for Siemens, and rumours of a sell-off have been rife for months.
Siemens said it hoped to complete the deal by the end of September, subject to approval by regulators and its shareholders.
"With this partnership, we have found a sustainable perspective for our mobile phone business," said Siemens chief executive Klaus Kleinfeld.
"BenQ and Siemens complement one another ideally."
News that the mobile phone arm - which had been losing some 3m euros a week - was finally to be offloaded sent Siemens shares up 2.4%.
BenQ has hitherto not been widely known outside Asia. More than half its products are built for other vendors rather than under its own brand name.
Tuesday's agreement will take it into the top 10 of world mobile phone vendors, giving it a foothold in Europe and America.
Siemens phones were once in the global top five, but problems with quality in high-end handsets and with stiff price competition in the mass market depressed its position.
The new firm is to be based in Munich, Siemens' own home town, where half the unit's 3,000 staff are based.
Most agreed last year to work longer hours in exchange for guaranteed jobs till 2006.