Philips hit by consumer worries

Philips Electronics reported a bigger-than-expected 28 per cent drop in quarterly core profit on Monday, as its television business sank deeper into the red. In addition, the company warned of slowing economic growth in mature markets

First-quarter earnings before interest, tax and amortisation (EBITA) fell to €265m - down from €370m the year before and compared with an average of €306m in a Reuters poll of 14 analysts.

"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," Philips chief executive Gerard Kleisterlee said in a statement.

The company's TV business is suffering from tough competition, especially in the United States, from low-cost rivals such as Taiwanese Amtran's Vizio brand, but it was also loss-making in Europe in the quarter.

Philips said it expected "some mature economies" to soften in the wake of a global credit crisis.

"It is a situation we are watching, the economy, and if there are things to be done we would do them without wasting time," chief financial officer Pierre-Jean Sivignon said.

Philips may scale back its branding campaign or trim some research and development spending, he said.

First-quarter revenue was nearly flat, at &euro5.963bn, compared with €5.93bn a year earlier and in line with analysts' average forecasts for €5.997bn.

Lehman Brothers analysts said Philips' healthcare division had posted strong results, with comparable sales growth of 5 per cent and a steady profit margin, considering the 17 per cent quarterly profit decline posted by GE's healthcare unit.

Both Philips and GE have been hit by a weak US imaging market due a law change, and Sivignon said by the second half of the year it will become clear if the market recovers. Philips' imaging systems orders already grew in a double-digit percentage range in North America in the first quarter.

The consumer lifestyle division - which makes TVs, electric toothbrushes, music players and coffee machines - will continue to feel margin pressure in its TV business, Philips said. The operating loss of the television activities widened to €95m in the first quarter from 51 million a year ago.

Sivignon said he expected Philips to lose money on televisions this year but return to a profit in 2009 after the decision to stop making TVs for the North American market and transfer those activities to Japan's Funai Electric.

The Funai deal, together with other steps to improve the largely outsourced business, would "go a long way" towards fixing the problems in the television business, Sivignon said.

Philips has no plans to exit the European TV business as well, Sivignon said, but added: "Longer-term... we will continue to look at it with all options open."

Group net profit fell to euro;219m euros from euro;875m a year ago, when it was boosted by a sale of shares in Taiwanese chipmaker TSMC.

Image: A new range of TVs has not helped Philips' fortunes in that business

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