He said profits in the first quarter will be substantially below those a year ago because of a weak consumer electronics market and lower demand from the personal computer industry.
The warning reinforces gloom about the prospects for European economies this year. It came after a year of buoyant profits in which Philips appeared finally to have put behind it the financial problems and heavy job losses of the early 1990s. Philips shares fell 7.2 guilders to 59 guilders (pounds 23) in heavy trading.
Analysts said this was not the start of a repeat performance of earlier troubles. But they were surprised by the need to put out a formal warning, which indicated that the likely fall in first quarter profits could be much larger than the market has expected.
Michael Molenaar of Theodoor Gilissen said market conditions, particularly in Europe, looked tough. "If you look at prices in the shops, they're under pressure and the German economy is still weak. It's going to be very difficult to turn things around." he said.
Philips denied that the warning could be related to the Grundig subsidiary, whose restructuring is costing 3,000 jobs and heavy provisions, which have already been announced.
The impact of falling demand could spread to the UK, where Philips makes electronic components, but company sources said there was no reason to see this as leading to job losses.
Mr Timmer said: "Net income from normal business operations in the first quarter of 1996 will be substantially below the excellent first quarter of 1995.
"The shortfall is mainly caused by the continuing weak market conditions for consumer electronics in Europe and the USA. Moreover, lower demand from the PC industry is negatively affecting the profitability of PC monitors and semiconductors."
Philips said that it planned to do everything possible to avoid a fall in earnings for the whole of 1996. Net profit was 544m guilders (pounds 214m) in the first quarter of 1995 and 2.68bn guilders for the whole of last year.
"First-quarter profit from ordinary operations could be as low as 300- 350m guilders," compared with 544 mn a year earlier, said Edward Flick, an analyst at Rabo Effectbank.
He added: "Things are evidently going badly. I was particularly surprised by the gravity of their full-year statement, and also by their comments regarding the semiconductor business - it was fairly well understood that the consumer electronics market was weak.
Eric de Graaf of ING Barings said "A substantial drop generally means in the order of 30-45 per cent."Reuse content