Philips CEO switches off TV in search for profit

By @ibtimes on

Philips is hiving off its once leading television business, the first step by new chief executive Frans van Houten to boost flagging profit at Europe's biggest consumer electronics maker.

Philips is moving its loss-making TV business to a 30/70 joint venture with Hong-Kong based monitor maker TPV and has the option to sell out. The Dutch group has struggled to compete against players like Samsung and LG Electronics.

Van Houten, a restructuring expert who took over as CEO this month, said on Monday he is assessing the profitability of Philips' 400 or so business areas, a hint that further divestments could be on the cards.

We are not yet firing on all cylinders...There's much unlocked potential in Philips, Van Houten told Reuters Insider.

Philips' shares opened lower on the news, but then recovered to trade up 0.9 percent at 0929 GMT.

Philips has 3,600 employees at the business, all of whom will be transferred to TPV.

It did not give a value for the deal, saying it would receive a deferred payment from TPV.

Philips showed its first television to the Dutch public in 1928 -- a bulky box-like contraption that was a far cry from its current sleek, flatscreen models.

But Philips, once a global leader in TVs, can no longer compete with lower-cost rivals.

The unit, which makes up less than 10 percent of group sales, has become a thorn in the firm's side, having notched up losses of almost a billion euros since the beginning of 2007.

Van Houten said the joint venture will enable a return to profitability for the television business, and an increased portfolio focus for Philips in health and well-being.

PROFIT DISAPPOINTS

Philips, which is also the world's biggest lighting maker and a top three hospital equipment maker, reported first-quarter earnings on Monday which fell short of expectations, a reflection of weak consumer sentiment.

It competes with General Electric and Siemens in the hospital and lighting markets.

Van Houten said the company faced a rather uncertain market, and expected an ongoing impact from the Japanese earthquake.

We see that many of our Japanese suppliers face some discontinuities and we have a dedicated team to deal with any risk. At the same time we are not sure how big the impact will be during the course of this year, Van Houten said.

Philips said TPV will purchase 70 percent of the shares in the joint venture for a deferred purchase price, equating to four times the joint venture's EBIT over the years 2012 until the year Philips exercises its right to receive the purchase price.

Philips also has an option to sell the remaining 30 percent stake to TPV for the same terms after six years.

Philips currently licenses its TVs to TPV in China as well as Funai in the United States and Videocom in India.

Philips announced first-quarter net profit of 138 million euros, down 31 percent from a year ago and below forecasts.

A Reuters poll had forecast quarterly net profit to fall 19.5 percent to 161 million euros.

Philips said in September when it unveiled its Vision 2015 targets that it wants its annual revenue growth to be 2 percentage points higher than global Gross Domestic Product (GDP) growth between 2011 and 2015.

Van Houten also said on Monday that although the firm aspires to reach its five-year target, it currently isn't at a growth rate to do so, and that it will update the market on its financial strategy and structure in the second half of the year.

(Additional reporting by Aaron Gray-Block; Editing by Sara Webb and Erica Billingham)

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