Charges, chips drag Philips to record net loss

AMSTERDAM: Philips' key semiconductor unit, Europe's third biggest, turned in a wider-than-expected fourth-quarter loss of 140 million euros on sales of 1.01 billion euros, while its components business, which will be folded largely into the chips unit, was also in the red.

"The semiconductors and components divisions were below expectations, showing that technology markets remain weak," said analyst Jan Willem Berghuis at Kempen & Co in Amsterdam.

"The rest of the divisions did slightly better than expected, so all in all the full results were more or less in line," he added. Profit from operations in 2002 came in at the high end of expectations at 420 million euros, against forecasts by analysts of an average 334 million euros. In 2001 the Dutch group posted an operating loss of 1.40 billion euros ($1.51 billion).

However, Philips booked a net loss of a whopping 3.21 billion euros, wider than last year's 2.48 billion, as a result of writedowns on stakes it owns in various technology and media companies.

The loss was wider than analysts' forecasts in a Reuters poll, in which loss predictions ranged from 3.16 billion to 1.45 billion euros, with the consensus at 2.28 billion.

The market, however, barely reacted to the figures. Philips shares were 0.5 percent weaker at 14.52 euros after closing the previous session three percent lower. The stock is down 13 percent this year.

The result was dented by a writedown of 1.96 billion euros on equity stakes in Vivendi as well as impairment charges of 1.31 billion euros for shareholdings in companies Atos Origin and LG Philips Displays. The stakes are a legacy of its past as a diversified electronics and media conglomerate.

No guidance for 2003

Philip issued no outlook for 2003 or even the first quarter, given current economic and political uncertainties. "We move into 2003 focused on improving profitable operational performance," Chief Executive Gerard Kleisterlee said in a statement.

The sprawling conglomerate, well-known for its light bulbs, shavers, DVD recorders, toasters and flat screen TVs but which is also active in monitors and hospital equipment, has shed many activities in the past years and has more recently decided to outsource low-margin manufacturing.

"I was pleasantly surprised by the operating profit, but there are some very serious impairment charges, even higher than I expected," said analyst Eric de Graaf at ING.

Kleisterlee told a results news conference that the group's biggest operating challenge remained its semiconductor unit, adding the company expected sales there to decline 10-12 percent in dollar terms in the first quarter.

The chief executive declined to say when the unit, which has been suffering from the chip industry's slow recovery after its worst-ever downturn, would turn profitable, but later added he hoped it would be in the second half of the year.

CFO Jan Hommen indicated that after a closure of one of Philips's chip-making facilities in the United States the unit has a load factor of about 60 percent, about 10 percentage points below a break-even level.

Strong euro hurts

Overall full-year sales declined two percent to 31.8 billion euros, in line with expectations. Sales fell as a result of a more expensive euro compared with the dollar and price erosion of seven percent, partly offset by six percent higher volumes.

Philips said unit sales had improved every quarter in 2002, compared with a sales volume decline in 2001. Sales grew strongly in Asia, slightly in Europe and fell in the Americas.

Even after a decade of restructuring, the electronics group continued trimming in the fourth quarter, cutting headcount by 13,360 to 170,087.

The firm took restructuring charges of more than 350 million euros in its chips and components unit. Overall overhead costs at Philips were cut by 324 million euros by the fourth quarter.

Philips shares are up 15 percent from a trough in technology stocks in October, in line with rivals in the DJ Stoxx European tech index. They are down 35 percent since December, when a rally based on 2003 recovery hopes peaked.

© Reuters