Lucent Technologies Inc, the telecommunications equipment company spun-off from AT&T Corp last year is now backing out of the consumer phone business – handing over its entire Consumer Products operation to European electronics giant Netherlands-based Philips Electronics NV. Under the terms of the deal, the two companies will merge their consumer communications products businesses into a jointly owned company with projected combined revenues of $2.5bn. Lucent is taking a back seat in the new business, which will trade under the existing Philips Consumer Communications name and will be controlled by Phillips through its 60% holding. Lucent will hold the remaining 40%. Both companies insist they will continue to invest in the joint venture in line with each company’s stake. According to Michael McTighe former managing director of the Philips Consumer Communications unit, and chief executive of the new joint venture, no money was exchanged as part of the initial merger. According to the companies, the ownership of the new company was devised based on the relevant revenues of the two companies consumer units. Philips says its unit made around $1.5bn last year with Lucent reporting around $1.1bn in revenues for its consumer division. Despite the revenues it generated, Lucent has looked keen for some time to focus on its high-end telecoms and semiconductor products, rather than keep plugging away at the consumer end. The Murray Hill, New Jersey-based Lucent’s second quarter figures showed network systems revenues grew 23%, its microelectronic products rose 18% and business communications systems were up 14%. Consumer electronics sales, however, were down 41% to $174m due mainly to the restructuring costs from the closure of its 388 US consumer phone retail outlets. Under the merger, Lucent will also hand over the vast majority of the 8,400 employees working in its Consumer Products unit to the new venture; Phillips will add 4,000 from its consumer telephony business. The new company will provide corded and cordless phones and answering machines, and develop, manufacture and market a line of products including digital and analog cellular phones, screen phones, and pagers. Earlier this year Philips said it was trying to raise its profile in North America and it clearly hopes that this deal will aid that task. However, Lucent still has an agreement with AT&T Corp to carry both the Lucent and AT&T brands on its consumer products. According to Philips, its name will not appear on the joint company’s products until 1999. Philips says it expects the joint business to be profitable from the time the deal is completed on October 1 this year. Its Consumer Communications division has not been profitable since it was formed in 1995. Lucent’s division, however, said its unit is profitable although it would not break out the figures. The pair also hopes to build on Philips’ brand name in Europe and Lucent’s in the US to push into the Asian and Latin American markets.
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