Dutch electronics group Philips said its struggling TV business will again fail to break even this year, raising pressure on new management to strike a major licensing deal or sell the unit. The company has been hit by fierce competition from ever cheaper television brands, made worse by the fact that it has high levels of stock to shift. It is under pressure to sell or close the TV unit, or speed up the process of farming it out via brand licensing deals.
Monday's profit warning comes in the same week that outgoing chief executive Gerard Kleisterlee hands the reins over to company veteran Frans van Houten, while Ron Wirahadiraksa will replace Pierre-Jean Sivignon as chief financial officer. Although both new chiefs are experienced in restructuring and cost cutting neither have spoken publicly about their plans. Analysts say Van Houten has stressed the TV business, which also notched up losses last year, should cease to be a distraction.
Philips said on Monday its TV business would report an operating loss of up to 120 million euros ($169 million) for the first quarter, more than double the fourth quarter operating loss of 67 million and up from a year-ago 19 million euro loss.
"We have a guidance for the full-year to break even and because of the loss in the first quarter it's unlikely we will reach that target," said company spokesman Joost Akkerman. Shares in Philips, which competes with US giant General Electric and Germany's Siemens, fell 1.8 percent by 1020 GMT to underperform Amsterdam's AEX index, which was up 0.1 percent. Peter Olofson, an analyst at Kepler, said he was surprised at the scale of the TV unit's decline, having expected it to report an operating loss similar to that reported in the fourth quarter last year.
He noted Philips was left with excessive TV inventories because demand ahead of the World Cup last summer was much weaker than expected and now Philips is stuck with having to reduce prices - effectively selling off old stock cheaply to make room for new TVs due to come out in the second quarter.
Philips warned in January that inventory in its television business would cause "some headwind" in the early part of 2011 and blamed weak TV sales then for disappointing fourth quarter results. It also reported a delay with its brand licensing agreement with TPV in China.
Akkermans said on Monday the problems with TPV had been resolved, but would not discuss whether the company was working on new licensing agreements, beyond the ones it has with Funai in the United States and Videocom in India. He reiterated the firm was looking at various options to fix the TV problem, but did not elaborate. He also said the company had not so far seen any impact on its TV business from components shortages relating to Japan's earthquake and tsunami, which have affected the electronics industry supply chain.
SNS Securities analyst Victor Bareno said the latest warning showed the difficulty Philips has had in turning the TV business around and stressed the company should take "radical action." "We expect the new management to announce in the short term a disposal of the largest part of the remaining TV business in the form of a brand licensing agreement," Bareno said. He said such a move would boost the company's share price given the current drag on margins, growth and outlook from the TV business.
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