Philips has given a strong hint that it is considering switching off its loss-making television business by unveiling plans to hive off the division into a joint venture.
The Dutch electronics giant, which posted a 31 per cent fall in quarterly profits yesterday, said that its TV operations would now be run in a long-term partnership with a Chinese company, TPV Technology.
The joint venture will be split 70/30 in favour of the Hong Kong-based business, with Philips retaining an option to sell its remaining stake to TPV after six years.
Philips showed its first TV to the Dutch public in 1928, but the division recorded losses of nearly €1bn (£880m) since the start of 2007, including €87m in the first three months of 2011. This dragged down the company's first-quarter profits from €201m a year ago to a lower-than-expected €138m, despite an overall 6 per cent rise in group sales.
Steve Klink, of Philips, said of the joint venture: "We have to be realistic. Profitability has been an issue for us. The TV industry at large is under pressure and we needed to find a structural solution to go forward with. This announcement will give our business new life."
The decision to spin off the TV arm is the first major action taken by Philips's new chief executive, Frans van Houten, who claimed the move would enable the division to return to profitability.
However, Martin Prozesky, a senior analyst at Stamford C Bernstein, said that it was a clear indication Philips was leaving the TV industry. "TPV are a good choice, but will they turn the TV arm around? I don't think so," he added. "This is just Philips managing the decline. They are effectively exiting the industry. It is not a solution to make them a big player again. They are just slowing down the erosion."
Shares in Philips ended down 0.92 per cent at €20.89 in Amsterdam.Reuse content