Royal Philips Electronics NV, the world's biggest lighting maker, said Monday its first quarter earnings fell 32 percent, and it is booting its once-mighty TV business into a joint venture with Hong Kong's TPV Technology in which Philips will hold a minority stake.
Philips says net profit was 137 million euros ($197 million), down from 200 million euros in the same period a year ago, as sales rose 5.6 percent to 5.26 billion euros.
This quarter's figures include a 106 million euro operating loss at television, which is suffering under intense price competition from Sony and Samsung, among others. Under the deal announced Friday, TPV will own 70 percent of a new joint venture operating the business in most markets outside the U.S., where Philips already has a similar deal with Funai.
Philips will receive licensing royalties starting in 2013 and will eventually receive a purchase price of 4 times operating profits at any time it chooses starting in 2014 — assuming the business makes an operating profit.
Philips has been making TVs since 1928 and it remains a strong brand in many parts of the world, which new CEO Frans van Houten said would help it return to profitability under TPV's manufacturing and distribution expertise.
For Philips as a whole, the company said it expected "headwinds" and supply chain disruptions this year due to the disasters in Japan, but did not quantify the financial impact.
Shares rose 1.1 percent to 21.325 euros in Amsterdam trading.
At the company's lighting arm, sales were up 6 percent to 1.9 billion euros in the quarter, with most of the growth coming from business customers rather than consumers. Sales of energy-efficient LED lighting grew by 27 percent — better than at Philips' competitors — and that segment now makes up 14 percent of Philips' total lighting sales.
Margins at the division declined, however, to 8 percent of sales from 11.3 percent, which Philips said was due to increased investments in research and development and in the business' sales arm.
However, on a conference call with reporters, Van Houten said commodity price increases were also playing a role. "The lower margin is in part due to rising prices of copper, phosphorus and steel, which we have not fully passed on to the market — yet," he said.
Philips' companywide operating margin after depreciation and amortization of goodwill, a measure known by the acronym EBITDA, fell to 8.3 percent from 9.9 percent. With undefined charges expected later this year when the TV business is carved out, Van Houten said the company would have to cut its current financial targets.
Those include running an operating margin of between 10 and 13 percent from 2011 to 2015.
"Our current course and speed is not yet satisfactory," he said. He said the company had "pockets of excellence."
"Now we need to fire on all cylinders."
Analyst Victor Bareno of SNS Securities, who rates shares a "Buy," said the company's results were "mixed," though he praised the TV move, which he said would remove uncertainty for investors.
"Comparable revenue growth is strong and should take away any worries that arose following the weak revenue figures in the fourth quarter of 2010," he said in a note on the earnings. But he noted the fall in margins was worrying and he said he would lower earnings estimates for this year.
Philips is also a major maker of medical imaging technology and patient monitoring systems, one area where both sales and profitability grew. It said sales were up 8 percent and operating profit rose 28 percent to 138 million euros, with orders strong in emerging markets.
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