Philips posts Q2 loss on Vivendi write down

Koninklijke Philips Electronics NV, Europe's biggest consumer electronics maker, posted a large second quarter net loss as it took an expected charge to write down the value of its stake in Vivendi Universal SA.

The Amsterdam company reported a net loss of €1.36 billion (AUD$2.52 billion as of June 30, the last day of the period being reported) compared to a net loss of €770 million in the year-ago period. Excluding impairment charges and other special items, net income was €171 million, Philips Chief Financial Officer Jan Hommen said at a news conference on Tuesday.

"We have taken impairment charges, virtually entirely relating to our shareholdings in Vivendi Universal," Hommen said. The total impairment charges taken in the quarter were €1.54 billion, with €1.52 billion related to Vivendi Universal, Philips said in a statement.

The value of Philips' 3.5 percent stake in Vivendi Universal dropped as the French conglomerate's shares tumbled. Philips now values its stake at €800 million, Hommen said, but "the Vivendi shares should be worth more than what they are trading at today, we think."

Sales in the quarter were up 4 percent year-on-year on a nominal basis, and up 5 percent sequentially, at €7.99 billion. The rise was the first year-on-year increase since the fourth quarter of 2000, Hommen said, driven by acquisitions at Philips Medical Systems.

Looking into the second half of the year, Hommen forecast "a very interesting increase" in Philips' bottom line.

"We think that the second half of the year will be better than the first half," he said, adding that this is normal to "some degree" because of seasonality. "We see the economy pedalling along at a pace that is a little bit up and down, but the trend line is slightly up," he said.

For the full year Philips expects to post a profit after impairment charges, Hommen said.

Philips is excited about its flat-panel LCD (Liquid Crystal Display) joint venture with LG Electronics Co. Ltd. of South Korea. The company, LG.Philips LCD Co. Ltd., posted a second-quarter net profit of €254 million, compared to a €97 million net loss in the year-ago period.

"This will be a strong year (for LCDs) and we expect next year to be a very strong year as well. This is a good market to be in at this time," said Hommen.

LG.Philips Displays Holding BV, another joint venture with LG for CRT (cathode ray tube) monitors, is not doing as well. It booked a €21 million loss before special items, compared to a break-even result in the first quarter, Philips said. LG.Philips Displays recently went through some restructuring.

Sales at Philips Consumer Electronics, Philips' largest division, accounting for about 30 percent of group revenue, fell 7 percent on a nominal basis to €2.35 billion. Philips blames portfolio changes and lower sales of mobile and cordless phones. Income from operations at the unit returned to positive numbers, helped in part by better performance in North America.

"Our U.S. (consumer electronics) operations are beginning to show real substance to their recovery plans and they have a shot at making break-even," said Hommen. Philips last year said it would ax its U.S. consumer electronics unit if it could not turn it around. Sales of DVD products, TVs and CD recorders at Philips Consumer Electronics are going well, while set-top box sales continue to lag. However, losses at Digital Networks, the part of Philips Consumer Electronics that makes the boxes, have been reduced following a refocusing effort, Philips said.

Philips Semiconductors, one of Europe's largest semiconductor makers and Philips' third-largest unit in terms of revenue, saw sales drop 2 percent year-on-year, but rise 10 percent sequentially on a nominal basis. Demand from mobile phone makers was a main factor for growth, it said.

Philips Semiconductors used 60 percent of its manufacturing capacity in the second quarter, compared with 50 percent in the first. However, customers placed more short term than long term orders in the second quarter than in the first, which indicates "continued uneasiness" in the market, according to Philips.

Philips Components saw sales climb 5 percent on a comparable basis. The division manufactures displays for mobile phones and optical storage products, among other products. Demand for color screens for mobile phones was high, but optical storage sales were lower, causing a sequential decline in income from operations, the company said.

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