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Philips Lowers Q3 North America CE Loss

Amsterdam, The Netherlands – Royal Philips Electronics substantially reduced its third quarter consumer electronics loss in North America, compared with second quarter results, but the company backed away from an earlier prediction of moving its struggling U.S. operation into the black by the end of 2003.

Price erosion and ongoing competition form existing brands and new market entrants continue to shape the CE market, said Philips, but the company believes its recently announced business renewal program will strengthen its competitive position.

Philips reported a third quarter loss of $26.9 million in North America, down from a loss of $41 million in the second quarter of 2003. It qualified its initial stance with the statement, ‘North America is expected to be close to break-even in the fourth quarter.’

Overall, third quarter CE sales dropped to $2.58 billion, down 1 percent — but up 6 percent on a comparable basis — from the $2.61 billion recorded in the year-ago period. Philips said lower sales in A/V entertainment were more than compensated by increased sales of televisions, set-top boxes and monitors.

The CE segment reported an overall loss from operations in the third quarter, coming in at a negative $37.5 million, compared with a $9.4 million operating profit for the same three months in 2002. Philips, which is in the process of streamlining its CE business, aims to reduce annual CE operating costs by $468 million by the end of 2005.

Weaker currencies led to a 4 percent decline in consolidated third quarter Philips sales, which hit $8.2 billion, compared with $8.6 billion year-on-year. Comparable sales increased 6 percent in the three months.

However, Philips moved into the black in the third quarter, reporting consolidated net income of $145.1 million, compared with a loss of $386.3 million in the same three months a year ago. The company reported an operating loss of $147.5 million in the third quarter, compared with operating income of $158 million year over year.

The quarterly figures included a $230.6 million charge for restructuring, of which CE accounted for $32.8 million. The company said it expects to end two years of losses this year, stating it would report consolidated operating and net profits in 2003, following restructuring and ambitious cost cutting.

For the nine months, consolidated Philips sales decreased 13 percent, to $23.4 billion, down from $26.8 billion in the same period a year ago. Sales increased 2 percent on a comparative basis. Year-to-date, Philips moved into the black, reporting net income of $113.5 million, compared with a $2 billion loss in the first nine months of 2002. However, year-to-date, the company recorded an operating loss of $140.5 million, compared with operating income of $436.6 million in the year-ago period.

Increased sales and scale efficiencies helped Philips nearly double LCD sales in its joint-venture operation with LG Electronics of Korea. Sales in the third quarter climbed to $1.5 billion, from $811.2 million a year earlier, while the company said it shipped 2 million large-size panels in September. Third quarter net income, with a half share attributed to each company, increased to $306.7 million, up from $65.6 million in the same three month in 2002.

At the same time, the Philips/LG Electronics displays joint venture saw sales drop to $1 billion in the third quarter, as the overall CRT market continued to be hampered by declining global demand and over-capacity. Sales in the third quarter of 2002 were $1.3 billion. The 50-50 joint venture recorded a $37.5 million third quarter loss, compared with net income of $53.8 million in the same three months a year ago.