Royal Philips Electronics NV will cede control of its 80 year-old television business to a contract manufacturer from Hong Kong, less than a month after hiring a new chief executive officer to accelerate growth.
Philips’ TV operation will be bundled into a new company, 70 percent owned by TPV Technology Ltd (冠捷), the Amsterdam-based company said in a statement yesterday. Philips will retain a 30 percent stake and will receive royalty payments of at least 50 million euros (US$72 million) annually from 2013 onwards.
Chief executive Frans van Houten, who took over at the start of this month, had made fixing the TV division his top priority, after his predecessor struggled to turn around the business for a decade. Heading for its fifth consecutive annual loss, the television subsidiary has suffered as Sony Corp and Panasonic Corp cut prices to combat local Chinese suppliers.
Photo: Reuters
“It is a positive surprise Frans van Houten has fixed this problem so fast,” said Jos Versteeg, an analyst at Theodoor Gilissen Bankiers.
The divestment will leave Philips focused on healthcare equipment, lighting and consumer electronics spanning shavers and toothbrushes. The Dutch company reported net income of 137 million euros, down from 200 million euros a year earlier. Analysts surveyed by Bloomberg had estimated profit of 165 million euros. Sales rose 6.2 percent to 5.26 billion euros.
Van Houten said he pursued the venture with TPV because just tweaking the 4,000-worker operation wouldn’t have been sufficient to turn it around. The unit was poised to fall short of break even.
It’s a divestment path already trodden by the Dutch company, which sold a majority stake in a PC monitor business to TPV for about US$358 million in 2004. TPV ran that business “successfully,” van Houten said.
The Hong Kong company plans to restructure the business, once the agreement is completed, which could be as soon as year-end, Shane Tyau, director of corporate finance at TPV, said by telephone from Hong Kong yesterday.
Philips’ consumer division, its largest by revenue, had operating profit of 104 million euros in the first quarter, compared with 162 million euros. Televisions will be treated at a discontinued business, Philips said yesterday. By contrast, earnings from healthcare equipment rose to 138 million euros from 103 million euros.
The company is Europe’s second-largest maker of medical technology after Siemens AG, which also competes with Philips in lighting. Lighting earnings fell to 152 million euros from 204 million euros.
“TV is really what everyone is looking at today,” Versteeg said.
Van Houten said the company predicts “headwinds” this year, citing the fallout from the Japanese earthquake, which would affect revenue and the company’s supply chain.
The company has a target for earnings per share to grow at twice the rate of sales until 2015, as Philips focuses on more profitable lighting and medical products and faster-growing markets including India and Brazil. Revenue excluding acquisitions, disposals and currency shifts will increase 2 percentage points faster than global economic growth, Philips said when it set the goals.
“It is our priority to accelerate midterm growth and profitability trajectory. Investments will be required to achieve this,” Van Houten said yesterday.
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