Philips' TV deal at risk, plans 4,500 job cuts

Philips Electronics has all but abandoned hope of selling its loss-making TV business by the end of the year and is considering its options should the deal collapse altogether. “The global TV market has deteriorated, and obviously the sooner we complete this the better, but we first need to finalise the negotiations, and whether we can do that this year or into the first quarter of 2012, there are some uncertainties with that planning,” Chief Executive Frans van Houten told reporters early on Monday. Philips – the world’s biggest lighting maker, a top three hospital equipment maker, and Europe’s biggest consumer electronics producer – said negotiations to sell off most of its TV business to Hong-Kong based monitor-maker TPV were intense, constructive and taking longer than expected.

“For the eventuality that a final agreement cannot be reached, Philips will consider its alternative options,” said Frans van Houten, chief executive in a statement on Monday. Speaking to reporters early on Monday, Van Houten said the companies were still negotiating, but that if negotiations were finalised, it could then take months to close a deal due to regulatory hurdles. Both Philips and TPV said on Monday there was no agreed timeline to close the deal. Van Houten also said it was too early to outline a backup plan for the TV business, which makes up less than 10 percent of group sales and has gone from being a global leader to a thorn in the firm’s side, having notched up almost a billion euros in losses since the beginning of 2007, when competition with lower cost Asian rivals began to intensify.

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“The TV negotiations are taking longer than expected, and there’s no final agreement, which is a clear negative,” said Rabobank analyst Hans Slob. “That Philips says the negotiations are ‘intense’ doesn’t sound very good either, and it looks like there is a clear chance they won’t strike a deal,” Slob added. On Monday the Dutch firm reported falling third-quarter profits due to higher restructuring and raw material costs and sluggish European growth and said it would focus on operational and overhead cuts as part of its 800 million euro cost cutting plan. Philips said it would aim to cut 4,500 jobs as part of the restructuring scheme to boost profits and meet its financial targets. That is about 3.7 percent of its non-TV workforce of just over 120,000, which had already been reduced by a 2009 programme to cut 6,000 jobs.

Despite reiterating the firm’s 2013 financial targets of 4-6 percent sales growth, and a margin on earnings before interest, tax and amortisation (EBITA) of 10-12 percent, Van Houten said Philips had a long way to go.

TV deal at risk

“We are not yet satisfied with our current financial performance, given the ongoing economic challenges, especially in Europe, and operational issues and risks. We do not expect to realize a material performance improvement in the near term,” he said in a statement. On Monday the firm reported third-quarter net profit of 76 million euros, down from 524 million euros a year ago on sales of 5.394 billion euros, down from 5.46 billion euros. Analysts in a Reuters-commissioned poll had expected third-quarter net profit of 53.8 million euros on sales of 5.341 billion euros.

The Dutch firm halved its third-quarter earnings before interest, tax and amortisation to 368 million euros, down from 648 million euros a year ago, due in part to higher restructuring and acquisition-related charges, and lower earnings at its entertainment and consumer lighting units. Philips had made a shock 1.3 billion-euro second-quarter net loss on writedowns at its lighting and healthcare units, due to weak consumer demand in Europe and North America, so analysts weren’t surprised by the third quarter results.

In the past seven months, Philips has issued two profit warnings, slashed its long-term growth targets, and been hit by the combination of low-cost Asian rivals, rising raw material costs, sagging consumer confidence, sluggish construction markets and government budget cuts in the healthcare sector. Philips’s shares, which have tumbled almost 40 percent over the year, were trading up 3 percent at 15.24 euros at 0845 GMT.

Philips competes with Samsung and LG Electronics, among others, in consumer electronics, and with General Electric and Siemens in the hospital and lighting markets.

Reuters