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April 24, 1997updated 05 Sep 2016 12:28pm

MARKETS OPTIMISTIC ABOUT PHILIPS TURNAROUND

By CBR Staff Writer

The markets have turned a blind eye to recent problems at Philips Electronics NV the Dutch electronics giant, and traders appear to have swallowed whole the story of a first quarter turnaround. Philips has revealed first quarter net profits up 22.0% at the equivalent of $239.0m on revenue up 3.2% at $8.38bn. The company puts improvements down to the expensive restructuring program started in 1996. Many analysts were well pleased with the figures as the shares moved to an all time high of $52 in early trading. But back in February this year, Philips was cutting 325 jobs at its Eindhoven headquarters, and credit analysts were reviewing the company’s debt rating. The fourth quarter of 1996 produced net losses of $43m before charging restructuring costs and chairman Cor Boonstra was still concentrating on weeding out the underperformers from Philips’ 100 plus subsidiaries. This year’s first quarter was lifted by the deconsolidation of failing German consumer electronics firm Grundig, which Philips has recently disowned (CI No 3,074). The company will now record only its 32% share of Grundig’s losses instead of bringing in 100% by including the German family owned affair as a quasi-subsidiary. Combine this with up-beat results from the consumer products division and Philips is talking about being back on course to achieving its profit targets for the year. But a closer look reveals that one of the main profit drivers, the components and semiconductors business, has produced falling profits and has significantly underperformed analysts expectations.

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