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Philips Q3 CE Loss Halved, Sales Rise 7%

Amsterdam, The Netherlands — A highly competitive third-quarter consumer landscape forced product margins to come under heavy pressure at Philips Electronics, especially in flat televisions and DVD+RW media.

However, the Dutch company’s CE segment still managed to reduce its third-quarter loss by more than half, thanks mainly to higher license income and cost savings. The CE segment’s loss from operations dropped to $18.6 million, compared with a loss of $39.6 million in the year-ago period.

The U.S. CE operation remained unprofitable in the third quarter, said Philips, but the company expects to register an operating profit there in the fourth quarter. However, Philips anticipates its U.S. CE business will remain unprofitable for the full year.

CE license income in the third quarter, ended Sept. 30, climbed to $130 million, up from $53.2 million in the same three months last year, but this was offset by a faster-than-expected decline in gross margin, due primarily to increased price competition, a sharp fall in panel prices and delayed product introductions in mobile infotainment.

Philips is expecting CE restructuring charges of about $86.7 million in the fourth quarter, but it also anticipates CE margins to recover somewhat as a result of seasonality, even though these will still be under pressure in the year’s final three months.

Third-quarter CE sales, driven by connected displays, mobile infotainment and licenses, increased 7 percent, hitting $2.8 billion, up from $2.7 billion year-on-year.

Overall comparable sales to North America rose 3 percent in the third quarter, due mainly to semiconductors and lighting. However, the weaker U.S. dollar had an 8-percent negative effect, which brought third-quarter sales down to $2.3 billion, compared with $2.5 billion in the same three months in 2003.

Consolidated Philips sales rose 3 percent in the third quarter, reaching $9 billion, up from $8.7 billion in the same three months a year earlier. The weaker U.S. dollar had a downward effect of 5 percent, while comparable sales increased by 8 percent.

Consolidated income from operations in the third quarter jumped to $2 billion, including a non-taxable gain of $786.3 million, compared with a year-over-year operating loss of $156 million, which included $257.6 million for restructuring charges. Net income hit $1.5 billion in the third quarter, compared with $153.5 million in the same period a year earlier.

For the nine months, consolidated sales rose to $26.2 billion, up from the $24.8 billion reported in the same nine months in 2003. Net income for the nine months jumped to $2.9 billion, compared with a year-over-year $120.1 million.