Slump in TV sales sees Philips Electronics net income drop 75% to €219m

ROYAL PHILIPS Electronics, Europe's largest consumer electronics maker, reported a bigger decline in first-quarter profit than analysts estimated as flat-panel television sales and prices fell.

Net income dropped 75 per cent to €219 million, or 21 cent a share, from a year earlier, when Amsterdam-based Philips had a gain from selling Taiwan Semiconductor Manufacturing Co shares. Sales rose 0.5 per cent to €5.97 billion. Analysts had predicted profit of €276 million.

Chief executive Gerard Kleisterlee said the squeeze on profit margins in televisions may continue.

Philips, which has been expanding in areas with more stable earnings such as medical gear and lamps, said last week it will exit its unprofitable North American TV business.

"Our results are clouded, more than we like, by the adverse situation in our TV business, significantly lower incidental license income and some acquisition-related charges," Mr Kleisterlee said in a statement.

There is growing concern among European industrial companies about the effect of the credit crunch, with groups such as Siemens and Linde recently saying they thought the damage to the real economy would be felt in Europe in the next six to 12 months.

However, unlike GE, Philips did not slash full-year forecasts but rather gently revised upwards a longer-term margin target, making it clear that the source of its woes was the fiercely competitive televisions business, where it has announced proposed remedies.

"The results are again quite disappointing, especially because of continuous margin pressure" in TVs, said Wim Zwanenburg, a fund manager at Bank Degroof Group, which oversees $43 billion and doesn't own Philips shares. "The focus on more predictability is not showing in the numbers yet."

Philips said it expected "some mature economies" to soften in the wake of a global credit crisis and said it would take steps to keep margins up.

The operating loss of the television activities widened to €95 million in the first quarter from €51 million a year ago.

"Consumer lifestyle was the big negative of the numbers," said asset manager Rene Bastiaenen of Eureffect. "Philips shares will take some losses, you can count on that."

Philips two other divisions - healthcare and lighting - both reported core earnings above average analyst forecasts.

The healthcare business, which has been hit by a weak US imaging market due a law change, showed comparable sales growth of 5 per cent and a steady profit margin.

Lighting sales rose 16 per cent to €1.7 billion driven by acquisitions and were up 3 per cent on a comparable basis. - ( Bloomberg/ Financial Times service )

© 2008 The Irish Times

This article appears in the print edition of the Irish Times