Philips' Q2 CE Sales Off 18%; Reports Operating Loss

Amsterdam, The Netherlands— Lower consumer spending and SARS-related effects pushed sales of consumer electronics down 18 percent at Philips Electronics during the second quarter, reaching $2.2 billion, compared with $2.7 billion in the year-ago period.

Philips reported a $47.4 million operating loss in its consumer electronics sector during the second three months, ended in June — the first CE segment loss in six quarters — down from operating income of $30.4 million in the year-ago second quarter.

Although Philips reported CE sales decreases in television and audio/video entertainment products — reflecting lower demand for high-end items — the company successfully boosted North American comp sales 7 percent in the second quarter. At the same time, Philips lost $28.2 million in North America, excluding $11.3 million for additional brand campaigns.

"CE is suffering most from weak consumer spending, but, as our increased brand investment illustrates, we remain equally determined here [in the United States] to meet our goals," said Gerard Kleisterlee, president/CEO.

Philips, which has been working hard to attain CE profitability in the United States by this year's fourth quarter, continues to focus on cost and asset management, "which clearly remains the best course, given the fragile market conditions," said Kleisterlee. The company expects weak markets for CE products to "continue for the time being." Overall Philips' sales to the United States in the first half dropped to $4 billion, compared with $5.4 billion in the first six months of 2002.

In the Philips joint venture with LG Electronics of Korea, sales of LCD products climbed 8 percent in the second quarter, hitting $1.1 billion, up from $994.5 million year on year. Net income for the three months reached $155.6 million, down from $286.4 million in the same period the previous year. Philips reported a 70 percent increase in the number of panels shipped for monitors and televisions.

The Philips/LG joint venture for displays saw second quarter sales drop 32 percent, to $879.5 million, down from a year-ago $1.3 billion. The joint venture reported a displays net loss of $2.3 million in the second three months, compared with a net loss of $170.3 million in the same quarter in 2002. The shrinking CRT market, both for monitors and TV sets, mainly drove lower sales, said Philips.

Consolidated sales at Philips dropped 18 percent in the second quarter, to $7.4 billion, down from $9 billion in the same three months a year earlier. The company reported net income of $47.4 million for the quarter, compared with a net loss of $1.5 billion year over year, when Philips was hit with a $1.8 billion impairment charge.

In the first six months, consolidated sales were flat on comparable basis, given a downward effect of 12 percent from weaker currencies and a 4 percent downward effect from various divestitures carried out in 2002. Sales hit $14.7 billion in the first half, compared with $17.6 billion in the same six months last year. Net loss for the six months was $30.4 million, compared with a net loss of $1.5 billion year over year.