Consumer slump knocks 56% off Philips profits

A SLUMP in the consumer electronics market sent Philips' net profits plunging by 56 per cent in the second quarter to 82m guilders (pounds 26m) from 187m guilders a year ago. The company, which has shed around 45,000 jobs in a massive restructuring, said that if economic and market problems persisted, group profits for this year were unlikely to match last year's 981m guilders.

The problems in the key consumer electronics sector are a blow to the beleaguered Dutch giant, which is trying to recover from a loss of more than 4bn guilders in 1990. But Jan Timmer, the chairman, insisted that the company's Centurion reorganisation programme was working.

He said: 'It's a pity we can't show you wonderful results because of consumer electronics - otherwise there might be a chance you would be drinking champagne with us.'

Mr Timmer said that Philips was determined to retain its position as a leading consumer electronics comany. But he fuelled speculation over the future of Europe's multi-million-pound programme to develop high-definition television by saying that if the HDTV project failed, Philips would not be badly harmed.

Analysts are looking at forthcoming new products, including future generations of television, interactive compact discs and digital compact cassettes to revive Philips' fortunes in consumer electronics. There is speculation that Philips may abandon HDTV and leapfrog to digital television, in which the US is forging ahead.

In the six months to June, Philips' group sales fell by 1 per cent to 25.8bn guilders from 26.1bn a year before. A bright spot in the results was the lighting sector, where profits rose sharply to 429m guilders from 261m a year earlier.

But improvements in many of its operations, including PolyGram, the music company, were insufficient to mask the decline in profits in consumer electronics, in which operating income slumped to 118m guilders in the first half from 470m a year ago. Prices in consumer electronics declined by an average 6 per cent as companies fought bitterly to retain market share.

Dennis Exton, an analyst with Merrill Lynch, said that Philips was not aggressive enough in product innovation in the problem consumer division.

'Consumer electronics is spoiling the party. There is a need for plant closure or conversion in the industry, which Philips is not doing enough to address,' he said.