Philips Looks to Increase Appliance Profits
Aug 23, 2004
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Royal Philips Electronics NV, one of Europe's largest consumer electronics makers, is interested in acquisitions to boost its appliances business, its smallest unit by revenue and last year's most profitable business.

"I would prefer acquiring a completely new application, though it could also be an addition to what we already have," Johan Van Splunter, head of Philips domestic appliances and personal care, said. He declined to name takeover targets or say how much might be spent.

Philips CEO Gerard Kleisterlee said the company's domestic appliance unit may receive funding for purchases to promote growth.

Amsterdam-based Philips made selling household appliances, which accounted for 7 percent of 2003 revenue of 29 billion euros (approx. U.S. $35.7 billion), its most profitable business by jointly developing products with consumer goods companies such as Sara Lee Corp. Its Senseo coffee machine, which uses Sara Lee's brew, has sold more than 6 million units worldwide.

The recently announced agreement with Interbrew SA, the maker of Stella Artois beer, to start selling a jointly developed beer draught system for home use is also part of the company's plan to boost profit margins for domestic appliances by working with consumer-products companies.

Philips reported its biggest quarterly profit in more than 3 years in July on demand for flat-screen TVs and chips used in mobile phones. Sales growth at the domestic appliances unit should also come from more spending on developing new products and marketing, Mr. Van Splunter said. "We don't have enough sales growth," he said. "To get sales growth, we'll need to increase our investments in both new applications or existing appliances with new features, such as the Senseo."

According to the company, 2004 sales will probably stay unchanged from last year's level of 2.1 billion euros (approx. $2.6 billion). In 2003, the domestic appliances business was Philips's most profitable business with a 18.7 percent operating margin. "The unit is a business that should do margins of at least 15 percent,'' Mr. Van Splunter said. "We have to invest in the business for the future however." (Bloomberg)

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