Philips TV unit bows to Chinese competition

Royal
Philips Electronics NA ill cede control of its 80-year-old television unit to
an Asian contract manufacturer, joining European conglomerates including Siemens
AG scaling back consumer electronics as prices decline.

Philips
will bundle its TVs, which the Amsterdam-based company first produced in 1928,
into a partnership that will be 70 percent owned by Hong Kong-based TPV Technology
Ltd., it said today. Philips will retain the rest and receive royalties of at
least 50 million euros ($72 million) annually starting in 2013.

Chief
Executive Officer Frans van Houten, who took over at the start of this month,
said he started exploring a new strategy for TVs after realizing that a simple
“tweak” would not have stemmed years of losses. Philips lost 87 million euros
from televisions in the first quarter, and van Houten said today he’s not yet
satisfied with the company’s performance and will step up investments.

“It’s
a positive surprise van Houten has fixed this problem so fast,” said Theodoor
Gilissen Bankiers analyst Jos Versteeg. “Van Houten certainly isn’t wasting any
time.”

The
Dutch company reported first-quarter net income of 137 million euros today,
down from 200 million euros a year earlier. Analysts surveyed by Bloomberg had estimated
profit of 165 million euros. Sales rose 6.2 percent to 5.26 billion euros.

Philips
shares were down 22 cents, or 1 percent, at 20.87 euros as of 3:10 p.m. in Amsterdam.

 

Top Priority

Moving
TVs into a venture accelerates a transformation of the Dutch company in the
past decade from a diversified conglomerate into a manufacturer of lighting,
health-care products and consumer electronics including toothbrushes and
electric shavers. Philips sold a semiconductor business in 2006, got out of mobile
phones, and sold a personalpersonal-computer monitor business to TPV for
about $358 million in 2004.

Van
Houten had made fixing the TV division, which employs 4,000 people, his top
priority, after his predecessor struggled to turn it around for a decade.
Heading for its fifth consecutive annual loss, the television subsidiary has
suffered as Sony Corp. and Panasonic Corp. cut prices to combat local Chinese
suppliers.

Philips
was among the last remaining mass-market producers of televisions in Europe, a
niche now largely occupied by luxury manufacturers including Loewe AG of Germany and Bang & Olufsen AS from Denmark. Siemens
and Nokia Oyi, the world’s largest maker of mobile phones, made televisions before
giving up production to narrow their focus.

As
part of the transaction, Philips has an option to sell the remaining 30 percent
shareholding in the joint venture any time after the sixth anniversary of the
completion.

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