Philips chief hits back after PolyGram slight

A row broke out within the Philips electronic empire yesterday after its 75 per cent owned PolyGram entertainments subsidiary described the group's pioneering digital compact cassette as in "intensive care".

The remark by Alain Levy, PolyGram's chief executive, when he announced his 1994 results on Monday, shook Philips directors when they read them in Dutch newspapers yesterday morning, hours before Philips's profits were published.

Jan Timmer, the president, rejected Mr Levy's description and said the fast-moving entertainment industry had "insufficient patience" with new products, which took years to establish themselves, as the compact disc had proved.

The digital compact cassette brings near-CD quality to tape players. Brought expensively to the market, sales of DCC players have been disappointing. But Mr Timmer said he interpreted intensive care as meaning that a lot of people were watching over the product.

Mr Timmer said it was wrong to focus exclusively on Philips's three high profile new products - the DCC, the interactive compact disc (CD-I) and high definition television. If DCC players took over all of Philips's cassette player sales this year, it would be only 0.5 per cent of turnover. He added: "If one of these things does not work out there is no huge problem."

Mr Timmer rejected suggestions that Philips and its partner Sony were ready to concede to Toshiba in the battle to set an indutry standard for video compact discs to replace video cassettes. Leading entertainment groups, including Time Warner and MGM have backed the Toshiba format, which some have seen as a knock-out blow.

Philips made clear it had no intention of repeating Sony's mistake in the 1970s, when it continued for too long with its Betamax videos against the more successful VHS.

But Mr Timmer "denied absolutely" that Philips and Sony would simply switch to the Toshiba format. He said that at a time when consumer electronics and computers were becoming more and more similar,there was "no objective basis as yet for a decision on which system is best". Industry observers say there is still a chance of persuading some of Toshiba's backers to break ranks.

Mr Timmer confirmed that Philips is looking for new partners, particularly in the multimedia business. But, in a reference to persistent rumours that the next move would be into computers, he said: "I deny that we have any intention of acquiring Apple or of any alliance with Apple."

Mr Timmer was reporting profits for 1994, which set the seal on the reconstruction of Philips after the company approached collapse at the beginning of the decade.

Net profit before extraordinary items and tax more than doubled from 856m guilders (£326m) to2.05bn guilders, at the top of analyst predictions. The dividend was raised from 0.5 guilder a share to 1.25 guilders. Fourth quarter net profit was 996m guilders, 54 per cent above a year earlier.

Mr Timmer said that the Centurion programme - the name given to the project to turn the company round - has not been stopped, but growth would now be emphasised rather than lay-offs.

Dudley Eustace, the Briton who is finance director, said Philips employment in the UK had stablised at about 10,000 jobs, down from 19,700 in 1990. Tens of millions of pounds of investment were going into the UK as a low cost base with flexible labour, he said. However, the bulk of the jobs growth in Philips is in the Far East , with a decline of 3,000 jobs overall in Europe.

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