Chips, flat screens boost Philips Q1 earnings

Philips Electronics reported Tuesday strong first-quarter earnings driven largely by higher sales of products in its semiconductor and consumer-electronics divisions.

The Amsterdam-based electronics conglomerate posted a first-quarter net profit of Euro 550 million (AUD$872 million as of March 31, the last day of the period being reported), compared to a net loss of Euro 69 million in the same period the year before, the company said in a statement.

Sales in the first quarter rose 2 percent to Euro 6.63 billion from Euro 6.5 billion compared to the same period a year earlier.

"We have been able to maintain the positive momentum begun in 2003," said Chief Financial Officer Jan Hommen in a telephone news conference.

Philips posted a net profit of Euro 695 million in 2003 after two consecutive years of multibillion losses.

The Dutch company expects to post a profit in 2004, with sales rising between 5 percent to 10 percent, according to Hommen. "I would say 10 percent is at the very high end; 5 to 7 percent is more likely," he said, adding that supporting events, including the Olympic games in Greece and the European soccer championship in Portugal, would help spur demand for consumer-electronic products.

Income from operations, or earnings before interest and tax, rose to Euro 218 million from Euro 32 million the year before. All of the company's five divisions -- lighting, medical systems, semiconductors, domestic appliances and consumer electronics -- posted operating profits for the second straight quarter.

Strong demand for flat screens used in televisions and computer monitors have helped fuel Philips earnings recovery, Hommen said. The LG. Philips LCD Co. venture with South Korea's LG Electronics Inc., a leading supplier of liquid crystal displays, contributed Euro 215 million to Philip's first-quarter net income.

"We see the LCD business continuing to grow strong," Hommen said.

The consumer-electronics division saw first-quarter sales grow to Euro 2.01 billion from Euro 1.94 billion the year before, with a dip in operating profit to Euro 59 million from Euro 73 million. In the key U.S. market, the division "did significantly better than a year ago," Hommen said without providing figures, adding that the unit "could break even or even post a small profit in 2004."

First-quarter semiconductor sales rose to Euro 1.30 billion from Euro 1.13 billion a year earlier. Income from operations was Euro 75 million, compared to a loss of Euro 178 million a year earlier. The company is experiencing exceptionally strong demand for chips used in mobile phones and flat-screen TV sets and computer monitors, according to Hommen.

Net debt at Philips stood at Euro 3 billion at the end of March, compared to 5.6 billion in the same period a year earlier.

After two years of intensive restructuring, the company now stands on a sturdy footing "with a very strong balance sheet," Hommen said. It has been reducing staffing over the past few years in a move to minimize exposure to economic cycles and lift its operations back to profitability.

Philips employed 165,312 people at the end of March compared to 164,438 at the end of last year and 166,394 at the end of March 2003.

The company will book a second-quarter net gain (after costs and taxes) of about Euro 100 million after U.S. software vendor Microsoft Corp. agreed on Monday to pay InterTrust Technologies Corp. $440 million to end a patent dispute. Philips owns 49.5 percent of InterTrust.

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John Blau

IDG News Service
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