Koninklijke Philips Electronics NV is expected to announce plans for its ailing mobile phone division Philips Consumer Communications (PCC) on Wednesday. Industry analysts are predicting PCC will be shut down.
"The scale of Philips' mobile phone business is too small to continue to exist. I hope and expect that Philips will phase out the entire division," said Henk Schillemans, an analyst with Theodoor Gilissen Securities, a part of Theodoor Gilissen Bankiers NV, in Amsterdam.
After PCC reported a loss of 118 million euros (US$101 million) in the first quarter of this year, Philips said it would examine the division's business and decide on its future in the second quarter. The company is considering closure, sale, merger, or a combination of the three, according to a Philips spokeswoman.
With a worldwide market share of 2.9 percent last year -- in number of phones sold -- Philips was a marginal player in a record year for mobile phones, according to figures from research firm Dataquest Inc., a division of Gartner Inc. In Q1 of 2001 the market share dropped to 1.8 percent, according to Dataquest.
Analysts rule out a sale, saying Philips is unlikely to find a buyer for its loss-making division in a deteriorating market. However, one analyst said the Dutch electronics giant might keep its Asian mobile phone business, which is turning a profit. Handset sales in Europe have hurt Philips the most.
"I wouldn't be surprised if Philips chose to close down in Europe and continue in Asia with a joint venture partner. Cutting out the sore, so to speak. However, it isn't easy to find a partner," said Daan Muusers, an analyst with Friesland Bank Securities NV.
Schillemans said there has been speculation about talks between Philips and a Chinese manufacturer of GSM (Global System for Mobile Communications) phones. However, maintaining only the Asian business would leave Philips with too small a business to be profitable, Schillemans said. The closing down of PCC would be expected to cost Philips about 600 million euros, he said.
Mobile handsets have always been a problem for Philips.
"The phones had no sex-appeal and Philips entered the market too late," Schillemans said.
If Philips were to make a major investment and find a strong partner, the company could survive in the competitive mobile handset arena, according to Peter Richardson, chief analyst at Dataquest.
"Philips has a marginal share of the market, but it has a sufficient distribution channel in Europe, a good brand name and good technology, it just hasn't been commercialized well. Philips needs to partner and decide to make a long-term commitment and investment," he said.
Richardson said Japan's Matsushita Electric Industrial Co. Ltd. has been rumored to be in talks with Philips. The Japanese, known for the Panasonic brand, would be the "ideal partner" for Philips, he said.
A shutdown of PCC, however, wouldn't surprise Richardson.
"Philips has stated that the company's divisions need to attain a top position in their markets. That won't happen on the mobile phone market," said Richardson.
Philips will hold an analyst conference on Wednesday, before which analysts expect a statement on the topic.