Philips plans sharp cuts in chip division costs

Philips plans cost cuts of Euro 250 million in its semiconductor division by the end of 2005.

Dutch electronics giant, Philips Electronics, plans significant cost reductions in its semiconductor division in a move to improve its operating margins.

"We plan cost reductions of Euro 250 million ($US307 million) by the end of 2006," CEO of Philips' semiconductor division, Frans van Houten, said.

Of these cost cuts, manufacturing will account for the lion's share at Euro 125 million, followed by general and administrative expenses at Euro 75 million and R&D (research and development) at Euro 50 million, according to van Houten.

"We have no plans to close any factories," he said, in reply to a question about whether or not the company intended to shut down any of its European production facilities. "That said, there is no guarantee for factories in Europe. They must be competitive."

Facilities in Europe and the Americas would focus mostly on proprietary systems and other specific components, van Houten said.

Of the various cost-cutting measures planned, one is to increase the amount of semiconductor production Philips outsources to other manufacturers, according to van Houten. The company plans to boost outsourcing of production to low-cost countries to more than 30 per cent of its business by 2008.

"Manufacturing will continue to shift to Asia," van Houten said.

Around 60 per cent of Philips' chip revenue is generated in Asia, particularly China, where a large number of its consumer electronics manufacturing customers now operate factories, according to the CEO.

Unprofitable and noncore activities will be sold, van Houten said, without providing details.

Among the areas of key importance to Philips are automotive electronics, mobile and personal entertainment and the digital home. Consumer electronics account for a third of the division's total revenue.

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John Blau

IDG News Service
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