Philips plunges into red in second quarter as slump in consumer electronics deepens

Royal Philips Electronics, Europe's biggest consumer electronics company, yesterday warned it would do no better than break even this year and possibly make a small loss after the slump in semiconductor, telecoms and computer industries deepened in the second quarter and spread across the globe.

Consumers are buying fewer computer chips, mobile phones, televisions and video recorders as the global economy slows. The downturn in these core markets for Philips accelerated in the three months to June, with sales volumes and prices contracting sharply.

Shares in the Dutch group fell 1.85 per cent to 28.66 euros after it revealed a plunge into the red in the second quarter. The net loss of 770m euros (£470m) was far higher than analysts had expected and compared with a profit of 3.60bn euros in the second quarter of last year.

A raft of exceptional charges distorted the figures but Philips' underlying loss came in at 348m euros, compared with a profit of 699m euros last time. Group turnover fell 16 per cent to 7.68bn euros.

The gloomy news from Philips, Europe's third-biggest semiconductor maker, also hit shares in STMicroelectronics, the Continent's number one, and Infineon of Germany, which is ranked second.

Gerard Kleisterlee, the president and chief executive of Philips, said: "The economic slowdown that started in the USA last year has spread to other parts of the world now." He does not expect to see any improvement in the semiconductor market until next year but believes losses for the group as a whole will "bottom out in the third quarter" and be no more than 10 per cent worse than in the second quarter.

Gert Jan Geels, a fund manager at the Dutch investment house Eureffect, said: "People were hoping for Philips to say the bottom is behind us and the second half would be better than the first, that is questionable now."

Philips will press ahead with major cost-cutting in the second half that will be covered by charges of between 250m euros and 300m euros, taking total exceptional charges for the year to 1bn euros.

The bulk of the charges will cover job losses. Mr Kleisterlee, who took over as head of the company in May, will axe between 3,000 and 4,000 staff over the next six months, taking total cuts at Philips this year to "well over 10,000", roughly 5 per cent of its workforce.