Philips set to spin off its once mighty TV business

Published on Sunday 17 April 2011 20:36

Frans van Houten, the new boss of Philips, yesterday switched off the firm's once huge television business as he looks to turnaround the fortunes of the Dutch electronics giant.

The loss-making TV arm will be spun-off into a joint venture with Hong-Kong based monitor maker TPV, with Philips holding only a 30 per cent stake in the new entity.

Although no financial terms were disclosed, the Dutch firm said it will receive deferred payments from TPV and has an option to sell its remaining shares to the Hong Kong company in six years.

Once a global leader in TVs, Philips launched its first set in the Netherlands in 1928 but has struggled in recent years against lower-cost Far East players, such as LG and Samsung.

The Dutch TV unit - which employs about 3,600 staff, all of whom will transfer to the joint venture - makes up less than 10 per cent of group sales and has become a thorn in the firm's side, having notched up losses of almost €1 billion (880 million) since the beginning of 2007.

Van Houten said the joint venture "will enable a return to profitability for the television business, and an increased portfolio focus for Philips in health and well-being".

Philips currently licenses its TVs to TPV in China as well as Funai in the United States and Videocom in India.

TPV will buy 70 per cent of the shares in the joint venture for a deferred purchase price, equating to four times the joint venture's profits from 2012 until Philips exercises its right to receive the purchase price.

Van Houten is also running the rule over all 400 of Philips business units, a hint that further sales could be on the cards.

He said: "We are not yet firing on all cylinders… there's much unlocked potential in Philips."

The group, which is the world's biggest lighting provider and a top-three hospital equipment maker, yesterday reported first-quarter profits that fell short of expectations, a reflection of weak consumer sentiment. It competes with General Electric and Siemens in the hospital and lighting markets.

Van Houten said the company faced a "rather uncertain market" and expected an ongoing affect from the Japanese earthquake.

He said: "We see that many of our Japanese suppliers face some discontinuities and we have a dedicated team to deal with any risk. At the same time we are not sure how big the impact will be during the course of this year."

Philips announced a first-quarter net profit of €138m, down 31 per cent from a year ago and below forecasts of €161m.

The fall came despite sales rising by 5.6 per cent to €5.3bn and included a €106m loss at the TV business.

The group announced in September - when it unveiled its "Vision 2015" targets - that it wants its full-year revenue growth to be two percentage points higher than global gross domestic product growth in 2011-15.

Van Houten yesterday said that although the firm "aspires" to reach its five-year target, it currently isn't at a growth rate to do so, and that it will update the market on its financial strategy and structure in the second half of the year.

Victor Bareno, an analyst at 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.

Jonathan Jackson, head of equities at Killik & Co, which also carries a "buy" rating, highlighted Philips' dominance in the lighting market as well as its presence in the healthcare sector.