Philips feels the pain from government cuts and slowdown in construction

Philips swung to a fourth-quarter net loss as government cuts ate into its healthcare equipment business and a slowdown in European construction activity and consumer spending hit its lighting operations.

Europe’s largest consumer electronics maker posted a net loss of 160 million euros after a profit of 465 million a year earlier, and the group said prospects for this year were no brighter.

“We are cautious about 2012, given the uncertainty in the global economy, and Europe in particular,” chief executive Frans van Houten said.

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“Our fourth-quarter results were impacted by weak European sales, postponement in deliveries of existing orders in our healthcare sector, and inventory correction actions and other operational issues in our lighting business.”

Philips said it was committed to its 2013 goals and underlying margins would improve in the latter part of 2012, but some analysts were sceptical of next year’s targets and said the second half improvement was at risk from challenges in the lighting division as the industry moves to light-emitting diodes (LED).

Philips makes almost 30 per cent of its sales in Europe, where they fell 5 per cent in the fourth quarter. Government austerity programmes are squeezing hospital budgets, and some have put orders for the latest equipment on hold.

European consumers are increasingly reluctant to spend, hitting sales of Philips lightbulbs and gadgets such as electric toothbrushes and shavers, leaving huge amounts of unsold stock. Austerity measures are also putting a damper on construction throughout Europe, and developers are holding back on kitting out complexes with the latest lighting systems.

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Philips also blamed supply chain “speed bumps” at its lighting unit, as it increases production of energy efficiency lights and LEDs, which use semiconductors, for falling sales at one of its key units.

Group sales for the quarter were up 3 per cent on the same period last year, led by 12 per cent higher sales in emerging markets, where Philips now makes 33 per cent of its sales.

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