Philips reports €9m profit, sees sales recovery

After closing last year with a record loss, Koninklijke Philips Electronics NV reported a net profit for its first fiscal quarter, and said the economy looks to be on its way up.

The net profit of €9 million (US$7.83 million as of March 31, the last day of the period being reported) compares with a €93 million profit in the year-ago period, when markets were still strong, Philips said in a statement Tuesday. The profit marks the end of three-consecutive quarters of net losses for the Amsterdam electronics giant.

Philips for the first time reported its results according to U.S. generally accepted accounting principles (U.S. GAAP), which led it to no longer amortize goodwill. If it were to follow Dutch accounting principles, the company would have reported a €91 million net loss, compared to a €106 million profit in the year-ago period, Philips Chief Financial Officer Jan Hommen said in a conference call with reporters.

Sales in the quarter came to €7.6 billion, down 7 percent compared to a year ago. Philips Consumer Electronics, Components and Semiconductors divisions are largely responsible for this sales decline, although Semiconductors and Components show better sequential sales in the first quarter, Philips said.

"It looks like we reached the bottom of the cycle," Hommen said. "We can be optimistic for the second quarter, but I want to be a little guarded for what comes after that. I think we will see a modest overall recovery in sales this year."

Even though Philips is cautious with the outlook beyond the first half of the year, Hommen said the company expects to report a profit at the end of the year.

In general, Philips said, the first quarter seems to confirm that markets are bottoming out, but overall conditions are still fragile. In the U.S. specifically the economy is showing positive signs, including a recovery of consumer and business confidence to pre-Sept. 11 levels, Philips said.

Conditions in Europe for Philips are slightly weaker because of lower exports, while economies in Latin America remained depressed due to political unrest in Argentina and weakness in Brazil. Business in the Asia Pacific region is developing well, with China and South Korea standing out, Philips said.

Philips is profiting from rising LCD (liquid crystal display) and PC-component prices. The LG Philips LCD Co. Ltd. joint venture with South Korean LG Electronics Inc. contributed €37 million to Philips' results in the first quarter, compared to a loss of €25 million last year, Philips said.

"LG Philips is seeing very significant price increases in the market," said Hommen. "We see rapidly increasing earnings in the LCD business."

The CRT (cathode ray tube) market, for which Philips has another joint venture with LG, is still tough, but has stabilized, according to Philips.

Philips Components reported sales for the quarter of €506 million, down 11 percent on a comparable basis from the year-ago period. However, Philips sees an upward trend with sales of mobile-phone displays and optical-storage products rebounding.

Sales at Philips Semiconductors amounted to €1 billion, down 30 percent, on a comparable basis, from last year's first quarter, but up 7 percent sequentially, Philips said. Fab-utilization rates improved to 50 percent by late March as demand for chips, especially display-related products, picked up, Philips said.

Philips Consumer Electronics, the company's largest unit in terms of revenue, reported sales of €2.2 billion, down 13 percent year on year, mainly due to lagging sales of audio products and VCRs, Philips said. However, TV, DVD and the accessory business showed growth, Philips said.

The U.S. consumer electronics business, which Philips has threatened to close if it doesn't meet secret short-term targets, is still loss making, Hommen said.

"The business is doing better and we expect them to do better and start improving their numbers in the second quarter. They will still be making a loss, but it will be a smaller loss," said Hommen, talking about the U.S. consumer-electronics arm.

Shares in Philips (PHI.AMS) were up 6.32 percent from the previous close, at €34.34 in early afternoon trading on the Amsterdam stock exchange.

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