Philips to offload troubled television business

Frans van Houten revealed the plan as Europe’s biggest consumer electronics maker reported a first-quarter net profit of 138 million euros (£121m), down 31 per cent from a year ago and below forecasts.

Philips is moving its loss-making television business to a joint venture. Hong-Kong monitor maker TPV will hold a 70 per cent stake and Philips has the option to sell its remaining share. The Dutch group has struggled to compete against players like Samsung and LG Electronics.

It was two years ago this month that Philips sold its remaining stake in set-top box maker Pace, which had been acquired when the Yorkshire firm bought its set-top box business in April 2008.

Saltaire-based Pace, once seen as a basket case company, has grown under Neil Gaydon to become the world’s largest supplier of set-top boxes to the payTV industry, leapfrogging global rivals Motorola and Technicolor.

Yesterday Mr Van Houten, a straight-talking restructuring expert who took over as Philips’ chief executive this month, said he is looking at the profitability of the firm’s 400 or so business areas – taken as a hint that other divestments could be agreed.

“We are not yet firing on all cylinders... There’s much unlocked potential in Philips,” he said.

These could include the audiovisual and multimedia business, which Philips said would be merged into its lifestyle entertainment unit in Hong Kong.

Mr Van Houten said even acquisitions from the past decade would be scrutinised, including home healthcare firm Respironics and lighting fixtures group Genlyte, which have not yet shown sufficient synergies.

Philips’ shares closed down 0.25 euros at 20.90 euros.

The firm has 3,600 employees at the television business, all of whom will be transferred to TPV. It did not give a value for the deal, saying it would receive a deferred payment from TPV, which controls about 33 per cent of the global computer monitor market.

Philips showed its first television to the Dutch public in 1928 a bulky box-like contraption that was a far cry from its current sleek, flatscreen models.

It was once a global leader in televisions but can no longer compete with lower-cost rivals.

The unit, which makes up less than 10 per cent of group sales, has become a thorn in the firm’s side, having racked up losses of almost one billion euros (£877m) since the beginning of 2007.

Mr 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 reported disappointing first-quarter profits after being hit by the slowdown in spending.

It said TPV will purchase 70 per cent of the shares in the joint venture for a deferred purchase price, equating to four times the joint venture’s EBIT (earnings before interest and taxes) over the years 2012 until the year Philips exercises its right to receive the purchase price.

The Dutch firm also has an option to sell the remaining 30 per cent stake to TPV for the same terms after six years. It currently licenses its televisions to TPV in China as well as Funai in the US and Videocom in India.

The sale had appeared to be on the cards since last month when Mr Van Houten said that televisions should no longer be a distraction for the group. Philips announced first-quarter net profit of 138 million euros. It said in September when it unveiled its Vision 2015 targets that it wants its annual revenue growth to be two percentage points higher than global gross domestic product growth between 2011 and 2015.

Yesterday Mr Van Houten said although the firm “aspires” to reach its five-year target, it is not currently growing sufficiently quickly, and that it will update the market on its financial strategy and structure in the second half of the year.

An ‘uncertain market’ ahead

Philips faces a “rather uncertain market” and faces a continuing impact from the Japanese earthquake, chief executive Frans van Houten warned.

“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.”

Analysts backed Mr van Houten’s decision to review the firm’s varying areas of business, however.

Sjoerd Ummels, ING analyst, said: “It’s a major positive... It’s clear (Van Houten) will address laggard businesses.”

Philips is also the world’s biggest lighting maker and a top three hospital equipment maker, competing with Siemens and General Electric.