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Philips Q3 Net May See Increase Due to Medical, Asia
Oct 10, 2003
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Philips Electronics is expected to report a boost from its medical unit and Asian ventures when it reports third-quarter figures.

Philips shares have gained 16 percent this month and analysts, many of whom rate the stock as a "buy" or even a "strong buy," say improving results topped with an upbeat forecast could push the stock still higher.

In a Reuters poll of 18 analysts, Philips is seen swinging to net profit of 35.9 million euros (U.S. $42.08 million) from a loss of 330 million euros a year ago. Sales are expected to fall to 6.5 billion euros from 7.3 billion due to a sell off of some units and a stronger euro.

Philips's volatile semiconductor unit is expected to show further signs of improving core earnings, which investors hope will point to a long-awaited recovery of the industry that has suffered its worst downturn over the past 2 years.

Philips has promised that the division will turn profitable in the fourth quarter, and the head of the chip division said at an analyst meeting last month third-quarter revenues would grow 5 percent or more from the second quarter in dollar terms.

"We expect Semiconductors to show an improvement in (core) results as capacity has been reduced substantially and demand is picking up," said Fortis Bank analyst Rene Verhoef.

In addition, Europe's number-three chip maker will receive a shot in the arm from the world's largest contract chip maker Taiwan Semiconductor Manufacturing (TSMC), in which it holds 22 percent. Established chip makers, looking to cut investments, are outsourcing more production to contract producers such as TSMC which are growing faster than the market.

Including the contribution from Philips's liquid crystal display (LCD) joint venture with LG Electronics, analysts expect the non-consolidated companies to add more than 100 million euros to the group's bottom line.

Philips's stakes in these two companies are estimated to contribute nearly a quarter of its market valuation, which is at just under 30 billion euros.

The profit contribution from TSMC and LG.Philips LCD will be more than offset by a charge of about 120 million euros for the closure of two U.S. chip plants.

Loss from operations, which does not include contributions from non-consolidated companies, is forecast at 45.4 million euros, dragged down by an estimated 150-million euro chip loss, a 60 million euro consumer electronics loss and a further 60-million euro loss from miscellaneous units Philips wants to sell.

A big driver behind the operating result will be the Medical Systems division due to cost savings and solid organic growth, turning a small operating loss into an expected 136-million euros profit.

Stable Lighting and Domestic Appliances continue to play their part to cushion the effects of the economic slowdown. Tighter consumer budgets have especially hit the consumer electronics division, however.

Some analysts fear weak consumer sentiment, as well as continuing price pressure, may force Philips to drop its pledge for its U.S. consumer electronics activities to break even in the final 3 months of the year. (Reuters)

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