Philips reports sharp drop in Q1 net income, shares fall

The world's largest maker of lighting said its net income was euro219 million (US$347 million), down from euro875 million in the first quarter of 2007 when it had reported a net gain of euro733 million for selling a stake in a Taiwanese semiconductor manufacturer, TSMC.

The recent quarter included a gain of euro83 million (US$131 million) for the partial sale of LG Display, Philips said.

Overall sales rose 1 percent to euro5.96 billion (US$9.44 billion), but comparable sales fell 9 percent in North America, mainly in televisions and videos, it said.

Chief executive Gerard Kleisterlee said performance was strong across most sectors. "Unfortunately our results are clouded, more than we like, by the adverse situation in our TV business" and lower revenue from license agreements.

Shares fell in morning trading on Euronext by 3.1 percent to euro23.15 ($36.65).

Analyst Jurgen Smits van Oyen of Petercam said the results were unimpressive, but no cause for excessive concern. Consumer products were disappointing, but that was balanced by "positive surprises" in health care. "On balance, we believe the company has released a fairly decent set of results given the economic circumstances," he said.

The company, which makes a broad range of products from simple kitchen juicers to lifesaving medical imaging systems, said it expected a further softening in mature markets, and will focus on investing in emerging areas and on integrating recent acquisitions.

"Essentially, it was a good start to the year," said Chief Financial Officer Pierre-Jean Sivignon, excluding offloading stakeholdings and disappointing TV sales. "We look forward to an encouraging second quarter," he said in a conference call.

China was a target for its expanding health care sector, as Philips closed a euro25 million (US$40 million) deal with Ascent Profit to sell digital radiography systems. Worldwide health care comparable sales expanded by 5 percent, driven by growth in ultrasound and cardiac equipment.

Lighting grew 3 percent, and Sivignon said energy-saving devices now comprise half of its lighting sector. "The green portfolio is starting to get traction," he said, with sales growing 12 percent in the quarter.

Last week Philips announced it will license its North American television business to the Japanese company Funai Electric Co. Ltd., in a five-year agreement effective Sept. 1, to counter what Kleisterlee called the unacceptable level of profits.

Sivignon said that while the losses in the American TV market were stark, they also were down in Europe where the company will focus on cost-cutting and improving efficiency. "It was a tough quarter all across," he said.

Kleisterlee said he was confident about Philips' progress in 2008 and that it was on target to meet its 2010 goals to increase earnings per share before interest, taxes and amortization to 10 percent or more.

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