AP News, January 22nd, 2007
Royal Philips Electronics NV reported strong increases in fourth-quarter and full-year earnings Monday thanks to the sale of its semiconductor division, a move the technology conglomerate said has put it on the path to more stable earnings.
Philips, which makes consumer electronics, high-end medical equipment, energy-saving light bulbs and household appliances like shavers, posted a fourth-quarter net profit of 680 million euros ($882 million), up from 332 million euros a year earlier. Fourth-quarter sales edged down to 8.13 billion euros ($10.6 billion) from 8.19 billion euros, with semiconductor sales stripped out for comparison.
The company sold its chipmaking division for 4.3 billion euros ($5.58 billion) in August to a consortium of private investors led by Kohlberg Kravis Roberts & Co., booking 129 million euros ($167 million) of that in the fourth quarter.
Philips' shares fell 1.6 percent to 29.17 euros ($37.51) in Amsterdam, as the company also warned that its consumer electronics division will continue to feel margin pressure early this year as the supply of flat-panel TVs exceeds market demand.
However that was "of no concern whatsoever" for the company in meeting its financial goals of 5 percent to 6 percent sales growth in 2007 and a companywide profit margin of 7.5 percent, Chief Executive Gerard Kleisterlee said.
"Consumer electronics is not the division that makes or breaks Philips," he told reporters.
Those words might once have been sacrilege at Philips, Europe's largest maker of consumer electronics in the 1990s.
But since then, the company has been steadily departing electronics markets where it doesn't hold a first or second-place position, notably divesting its mobile phones operations after being eclipsed by Nokia Corp.
With the sale of the semiconductor business, the company is now better classified as a "diversified industrial" company, Kleisterlee said Monday, and Philips plans to drop the word "electronics" from its name at its next annual shareholders meeting.
He also said Philips plans to buy back 1.6 billion euros ($2.1 billion) of shares in 2007 and sharply raise dividends.
"We analysts look a lot at quarter-by-quarter developments, and those present a mixed picture," said Dinant Wansink of Delta Lloyd Securities of the earnings.
But "in the long term, these strategic moves have had a big impact on Philips. Lighting, domestic appliances, medical systems, these are very reliable businesses."
Wansink said that in the short term, consumer electronics was a worry, despite Kleisterlee's reassurances, as was Philips' 33 percent stake in South Korean LCD panel maker LG.Philips LCD Co.
LG.Philips contributed a loss of 41 million euros ($53 million) to fourth-quarter earnings, swinging from a 101 million euros profit amid brutal price cutting by liquid crystal display sellers.
Sales dropped 6 percent to 3.26 billion euros ($4.23 billion) in the fourth quarter at Philips' consumer electronics division, still its largest by sales, though operating profit was up 10 percent to 259 million euros ($336 million).
Philips' medical division _ now its most profitable _ reported operating profits up 16 percent to 311 million euros ($404 million), which Wansink said was a pleasant surprise. Operating profits at Philips' lighting and household appliance activities both declined slightly.
Full-year 2006 earnings came to 5.38 billion euros ($6.98 billion), up from 2.87 billion euros, including the gain from the semiconductor division sale. Full-year sales rose 6 percent to 27 billion euros ($35 billion) _ with semiconductor sales stripped from the figure.
"If you compare (like to like) we have about a percentage point improvement in operational profit in '06 compared to '05," Kleisterlee said.
"The other good news is that we have significantly cleaned up our portfolio ...(and) the high-margin divisions are growing."
However, he stopped short of saying Philips' earnings would be clear of exceptional gains and losses in 2007, since the company is planning to sell some noncore holdings.
In addition to the LG.Philips stake, Philips retained a 19.9 percent stake in the semiconductor business, now re-branded as NXP, and 16 percent of Taiwan Semiconductor Manufacturing Co.
Kleisterlee said Monday he would use any proceeds from selling these stakes for more share buybacks or acquisitions.
