Philips looks at getting out of TVs
Philips may go as far as hiving off its TV operation in a bid to boost profitability in consumer electronics. Its first step is to get out of markets where margins are too low, following the example of the domestic appliances division.
Philips plans to get out of markets where margins are too low to sell its TVs profitably and may even hive off the unit. Philips chief executive Gerard Kleisterlee told a news conference that the business would follow the example of the domestic appliances division that only offers products in stores and markets where it can generate sufficient margins.
The company is suffering tough competition, especially in the US, from low-cost rivals such as Taiwanese Amtran's best-selling Vizio TV brand.
Philips would go for "higher margins, at whatever sales level the higher margins will come", Kleisterlee said.
The company, for instance, does not sell toasters or water kettles in the US because it cannot generate the margins it wants there, Kleisterlee said.
He explicitly did not rule out selling the TV business, saying Philips would look at all "feasible options".
Kevin Lewis, the strategy chief of Philips' new consumer lifestyle division, told Reuters earlier this month that North America was a "brutally competitive market", especially for TVs.
Philips rolled out its new Aurea TV set with much fanfare at the IFA consumer electronics show in Berlin last year, hoping the flat-panel TV that creates a glow of colour around the set would command higher margins than ordinary TVs. Yet televisions generate the lowest margins in Philips' consumer electronics business, which already has by far the lowest core earnings margins of the group at around 3 per cent.
"Especially the US television market is a very difficult one," Petercam analyst Eric de Graaf said. "In Europe... nobody will shop in Italy if they live in Sweden because it's €50 cheaper. In the US, it's all Internet-based.
"It could well be that they are loss-making or only marginally profitable in the display business in the US."
Dresdner Kleinwort analysts wrote in a note: "A likely exit from the US TV market this year would further reduce the US risk for this stock."
Almost half of Philips' €13.3bn sales of consumer lifestyle products in 2007 were generated by televisions, Philips said. This figure includes sales of consumer electronics and domestic appliances, which were merged into one division from January.
The consumer electronics division by itself contributed 38 per cent of group sales but only 17 per cent of earnings before interest, tax and amortisation (EBITA).
Kleisterlee said the problem around the television business was largely one of perception. "Given its revenue, it always draws headlines, and it always leads to the reaction: 'There's something in the consumer market, it will hurt Philips'," he said.
"Then you see again it doesn't hurt Philips, but because that is the primary reaction, we need to do something about it."
Image: Philips hoped that the lighting effects of its Ambilight and Aurea TVs would improve margins