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February 14, 1997updated 05 Sep 2016 12:01pm

PHILIPS SLIPS BACK INTO LOSS FOR QUARTER

By CBR Staff Writer

The recovery at Philips Electronics NV turns out to be of the patchy kind that suggests that problems have been alleviated but not squarely addressed, so that when times are good, the figures will look reasonable, but when times get tough, the company will plunge straight back into losses. Philips reported a 1996 net loss equivalent to $312.8m after taking net extraordinary charges of over $690m in the year – fair enough, after all those charges, you expect to make a loss. But the company managed to make a loss from ordinary operations of $43m in the fourth quarter – hardly a good omen when the chimera of Economic & Monetary Union is driving most of continental Europe into recession. The year 1996 was a severe disappointment, due to a much lower level of sales growth and costs which grew faster than sales, Philips said, suggesting that current businesses would nevertheless continue to grow this year. We had to take substantial restructuring charges, and we are committed to a return to profitability and to the achievement of a positive cash flow of over one billion guilders, which is $530m at current exchange rates. Philips chairman Cor Boonstra added that Philips had not responded quickly enough to market conditions. Part of this decline was caused by gearing up our organization for growth which did not materialize. We were simply not quick enough in reacting to the market, said Boonstra. We do not blame the markets, nor our competitors, but rather take full responsibility for our lack of speed, he said.

Underperformers and loss makers

At this stage we are focusing on building our 100 existing businesses, rather than acquiring businesses in new areas or strategically reshaping the portfolio. Boonstra reiterated his policy of weeding out the company’s underperformers and loss makers. While this process is not yet complete, it is on schedule, and we are rapidly disposing of actvities that absorb profits, cash and management time. The company said it had further to go in realizing the full potential from the explosion of digital technology and was looking at its strategy for digital high-volume electronics. Our strong brand… technological capability and global organization position us well in the new digital world, Boonstra said. Yet we have only begun to realize the potential that these assets offer, and therefore are undertaking a major effort to redefine our strategy for digital high-volume electronics, he said. It will look during 1997 at its main portfolio of businesses, identifying how they were linked, the market positions they held and how Philips would build profitable growth. Boonstra further reiterated the company’s longer-term goal of a 24% return on net operating capital. Philips also played down market talk of a possible split-up of the company, reiterating that it was pursuing its previously announced process of evaluating units and preparing budgets for its businesses, but Boonstra declined to be drawn on concrete strategy moves. One sector that was a bright spot was chips – the company said that its semiconductors activities had managed to buck the decline in the chip market: since we do not sell memory products, we were able to show positive though moderate nominal growth of 6% (in dollar terms 1%), Arthur van der Poel, chairman of Philips semiconductors, said.

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