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Philips not so chipper
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February 8, 2001: 7:44 a.m. ET
Electronics firm warns of more difficult conditions as 2000 profits fall short
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LONDON (CNN) - Philips, Europe's biggest consumer electronics maker, unveiled lower-than-expected 2000 profits on Thursday and warned of a slowdown ahead.
The Dutch maker of everything from flat-screen TVs and computer chips to toasters and light bulbs said slowing U.S. growth and signs of oversupply in the telecom market will hurt in 2001.
Sales of semiconductors – Philips is Europe's No. 2 manufacturer – in the first quarter of 2001 are expected to fall by some 15 percent versus the fourth quarter of last year.
Philips' top executive emphasized growth is still strong -- just slowing from the blistering rates of previous years. 
"We expect our semiconductor organisation to outgrow the market this year," said Philips president Cor Boonstra, speaking on CNN International on Thursday. "The semiconductor industry is expected to grow in the single digits (in percentage terms) this year, and we expect to grow 15 percent – although that's certainly not the rate seen last year or the year before."
Philips said income excluding one-off items rose to a record  2.6 billion ($2.4 billion) in 2000, up from 1.6 billion in 1999. Analysts had expected a number between 2.9 and 4.3 billion, according to a Reuters poll.
Sales rose 20 percent to 37.9 billion.
The company said it has begun to reap the fruits of four years of restructuring including shedding thousands of jobs, and credited a healthy U.S. economy and a strong dollar for the record results in 2000.
Philips tallied more than 7 billion in one-off gains in 2000, largely from its sale of stakes in chip equipment maker ASM Lithography (2.6 billion), JDS Uniphase (1.2 billion) and Seagram (1.1 billion). Including those gains, its 2000 net profit jumped to a record 9.6 billion, up from 1.8 billion a year earlier.
A 'mixed' picture
By segment, income from continued operations in consumer electronics rose 45 percent to 374 million, lighting rose 11 percent to 668 million, while semiconductors' profit more than doubled to 1.3 billion.
"It's really a mixed picture," said Per Lindberg, an analyst with Dresdner Kleinwort Wasserstein in London, who has a "buy" rating on Philips. "It was a weak showing in consumer electronics and components, but there was strength in semiconductors, domestic appliances, lighting and medical."
"In the near term, they have to show how flexible they can be in adjusting their cost base," amid the climate of falling prices and stiff competition from Japanese and Korean rivals, said Lindberg. Its consumer electronics division "has a lot more streamlining to do," he added.
"It's really a matter of reallocating its resources to growth areas, such as DVD players and mobile phones, and away from old-line sectors," Lindberg said. 
Boonstra echoed Lindberg's view that Philips needs to accelerate its efforts to contract out the manufacturing of its mobile handsets.
"Last year we maintained a 7-percent share of the European market (in handsets). To improve on that we need a partner to speed up development," said Boonstra, declining to comment about who those companies might be.
"Remember," Boonstra added, "around 70 percent of worldwide hand-held sets contain a Philips component – a display or chip or loudspeaker."
For the fourth quarter of 2000, Philips reported income from continuing operations rose to 802 million, up from 511 million in the fourth quarter a year earlier.
After a morning dip, shares of Royal Philips Electronics were up 0.7 percent at 37.07 in Thursday afternoon trading in Amsterdam. 
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