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Philips’ 1st Quarter CE Sales Drop 5%

Declining consumer confidence and overstocked retail channels were the prime culprits for a 5 percent comparable decrease in consumer electronics sales at the Philips Group in the first quarter. Sales dropped from $2.5 billion in the initial three months of 2002, to $2.1 billion in the first reporting period of this year.

Overall income from operations in the CE segment hit $78.5 million in the three months, up from $54.8 million a year earlier.

Results in North America continued to improve in the first three months, up from a loss of $54.8 million in the first quarter of last year, to a loss of $32.2 million this year. However, sales to the United States were on a down slope, reaching $1.8 billion, compared with the $2.4 billion reported in the same three months in 2002. The company blamed much of this drop on the weaker U.S. dollar. On a comparable basis, sales climbed 1 percent in North America during this period.

Philips noted particular CE first-quarter sales decreases in television, down 9 percent; European cellphone service (GSM), off 33 percent due to price erosion; and set-top boxes, down 38 percent. Monitor sales increased by 5 percent, mainly due to LCD growth in Asia.

CE income from operations in the first quarter, ended March 31, excluding licenses, resulted in a loss of $30.1 million, down from a loss of $36.5 million in the year-ago period. GSM losses reached $15 million in the quarter, while other parts of CE were generally able to maintain last year’s profitability level.

Sales of Philips LCD joint venture with LG, of Korea, increased 6.9 percent in the first quarter, hitting $826.5 million, up from $773.9 million in the first quarter of last year. The business reported a loss of $36.5 million for the three months, compared with a profit of $79.5 million year over year.

Philips diplays joint venture with LG accounted for $1 billion in sales during the first quarter, down 5 percent from the $1.3 billion reported in the same three months in 2002. However, the venture was able to reduce its loss to $36.5 million in the period, down from a loss of $194.5 million in the first quarter a year ago.

Consolidated sales at Philips decreased 14 percent in the first quarter, down to $7 billion, from $8.2 billion the previous year. Philips recorded a $74.2 million net loss for the first three months, compared with a $9.7 million gain in the first three months of last year. However, this decrease is significantly below the $1.6 billion net loss reported in the fourth quarter of 2002, and the $1.5 billion net loss recorded in last year’s second three months. The net loss was $354.7 million in the third quarter of 2002.

“Although net income was a loss, the first quarter of 2003 has demonstrated again that Philips is able to show a positive operational performance in spite of adverse conditions,” said president/CEO Gerard Kleisterlee. “Seasonality and the weaker U.S. dollar, coupled with declining consumer confidence, especially affecting CE, resulted in significantly lower sales levels.” Consolidated income from operations hit $34.4 million in the first quarter, down from $78.5 million year-on-year. Philips reported a $34 million charge for the quarter.

Looking ahead to the remainder of 2003, Philips said its CE segment continues to improve its overall performance, but remains more vulnerable to market weaknesses as a consequence of low consumer confidence levels. The company said it will cut spending in 2003 by more than $1 billion, and that any financial improvement will be mainly attributed to ongoing restructuring.