Wire ServicesPhilips is heading for yet another profit slump after a writedown of an unprofitable TV venture wiped out gains at the medical, lighting and appliance units.
In Australia Philips has constantly failed to penertrate the market with many retailers in the CE channel refusing to stock the European makers products.
Net income probably fell 62 percent to $226 million according to the median estimate of 13 analysts in a recent Bloomberg news survey.
Philips is investing in medical systems, appliances and lighting to lessen the impact of earnings swings from its electronics and semiconductor units. The company booked $400 million in costs in the quarter to write down the value of LG.Philips Displays, which is suffering as consumers switch to flat-screen televisions. Philips also plans to separate its chip unit, which may be a prelude to a sale, investors say.
“It’s too early to see the impact from the strategic shift in the numbers already,” said Pieter Wind, who oversees about $12 billion, including Philips shares, as head of securities at ING Private Banking in Amsterdam. “For now, the strategy isn’t the main driver for the stock, it’s cost savings and alliances.”
Fourth-quarter net income will include about 580 million euros in one-time costs, according to Eric de Graaf, an analyst at Petercam in Amsterdam. One-time expenses and gains in the quarter will include a 240 million-euro tax payment related to transferring a stake in Taiwan Semiconductor Manufacturing Co. and a 210 million-euro gain on selling shares in LG.Philips LCD Co.
LG.Philips Displays, the company’s other venture with South Korea’s LG Electronics Inc., is the world’s second-largest maker of tubes for TVs and monitors. Taiwan Semiconductor, in which Philips holds 16.4 percent, is the world’s largest supplier of made-to-order chips and LG.Philips LCD is the world’s No. 2 maker of liquid-crystal displays. Philips said on Dec. 21 it will take charges of 290 million euros for a “negative difference in currency translation” and 128 million euros for writing down the value of the LG.Philips Displays venture. It also said it would take a cash charge of 42 million euros linked to a guarantee to the venture’s banks.
Kleisterlee, who became CEO at the end of April 2001, is trying to make earnings more predictable by focusing on businesses that are less sensitive to economic swings.
Investors will look for signs demand is increasing for electronics ranging from MP3 music players to mobile phones. Philips chips are used in Samsung Electronics Co. handsets, Sony Corp. TVs and Apple Computer Inc. iPods. The consumer electronics division, which makes products such as TVs to DVD players, made up about a third of sales in the third quarter, making it Philips’s largest unit by revenue.
“CE is getting less cyclical in terms of how it affects Philips earnings as the company has farmed out production and is smarter in procurement,” SNS’s Van Spaendonck said.
The company’s division most linked to swings in demand is the semiconductor unit. Philips Semiconductors in Europe trails Infineon Technologies AG and STMicroelectronics NV. Infineon and STMicroelectronics will report earnings Jan. 24.
Philips on Dec. 15 said it will place its semiconductor unit, which accounted for 16 percent of third-quarter sales, in a separate legal structure. Kleisterlee said there is a “range of options” for the unit, including an initial public offering. “There are also a number of possibilities in M&A that could lead to a partial ownership by Philips” in the chip business, he said