Philips U.S. CE Operation Makes Modest Profit

By Jeff Malester -- TWICE, 2/10/2004

Eindhoven, The Netherlands — Royal Philips Electronics’ U.S. consumer electronics operation reached the break-even point in the fourth quarter — recording a nominal $1.3 million profit — while the company said it is working toward full profitability for its CE business in the United States in 2004.

Fulfilling a promise to stop CE losses in the United States, Philips reported this upward trend helped overall company CE segment operating income to increase to $314.6 billion in 2003, up from $263.9 million the previous year. Higher licensing income also contributed to the rise, while the segment reported charges of $73.6 million in 2003, compared with $93.9 million the previous 12 months.

CE segment sales, however, dropped to $11.7 billion for the 12 months, down from $12.5 billion year-on-year.

On a global level, the CE division 'has emerged a good deal leaner and fitter,' said Philips chief executive Gerard Kleisterlee, who expects the company’s CE business to be able to achieve further annual savings of $507.5 million within two years.

In the year’s second half, Philips said 2 percent CE growth was driven mainly by flat-panel televisions and DVD.

For the 12 months, Philips said it exceeded its year’s target of $1.3 billion in consolidated savings, with additional consolidated savings of $616.6 million for 2003.

Overall sales to North America dropped 19 percent in 2003, to $10 billion, from $12.4 billion, due mainly to a weaker U.S. dollar. On a comparable basis, sales climbed 5 percent. Philips reported a loss from operations of $521.4 million in North America in 2003, narrowing a $661 million North American loss from the previous year.

On the back of a strong Christmas season, fourth quarter CE operating margin reached 8.1 percent, while, through an ongoing cost-savings program, Philips is looking to achieve a stable 4 percent to 4.5 percent operating margin by the end of 2005.

A recovering CE business helped Philips record consolidated net income of $758.7 million in the fourth quarter, compared with a loss of $1.9 billion in the same three months in 2002. A weakened U.S. dollar led to a 1 percent sales increase for the period, while the increase was 10 percent on a comparative basis.

For the 12 months, Philips consolidated sales decreased 8.7 percent, to $36.8 billion, from $40.4 billion the previous year. The drop was due primarily to negative currency effects caused by the weak dollar, since Philips generates about one third of its sales on U.S. soil. Comparable sales growth jumped 4 percent in the 12 months.

Consolidated net income for 2003 came in at $881.7 million, compared with a net loss of $4.1 billion in 2002.