Weak demand through Europe sees the lights dim for Philips

The Amsterdam-based company said its lighting arm, the biggest lightbulb maker in the world, will report low, single-digit, like-for-like sales growth in the second quarter of 2011 and that its margins are under pressure from lower consumer spending.

The division’s underlying profits will come in at 85 million euros (£75.3m), 56 per cent less than in its first quarter, it said.

Philips’s consumer electronics division, which makes goods ranging from music systems to shavers, is also being hit by weak demand in western Europe and expects small sales declines. Its underlying profits are expected to come in at 50 million euros (£44.3m) in the quarter, down 58 per cent on the previous three months. The company said it will shortly announce a cost-reduction programme, in addition to its current performance improvement programme, to try to turn around its fortunes.

Philips’s warning shocked a market expecting a turnaround in the firm’s consumer lifestyle division since it spun off its loss-making TV unit into a joint venture with China’s TPV Technology earlier this year.

Its lighting division was also hit by increased investment and marketing costs and a slowdown in activity in construction markets.

It said its personal care and health products, such as cardiac equipment used in hospitals, saw double-digit sales growth but this was more than offset by falling sales in its traditional consumer electronics market.

“We fear future market share losses for Philips’ lighting as there will be more companies wanting to get a piece of the LED pie,” said Rabobank analysts Hans Slob and Philip Scholte.