Philips Electronics Expects to Post
A Tripling of Net Profit for 1999
By JAMES M. DORSEY
Special to THE WALL STREET JOURNAL
AMSTERDAM -- Dutch electronics giant Philips Electronics NV is poised
to post a threefold increase in its 1999 earnings as a result of a turnaround
in its consumer division, smart acquisitions, and improving semiconductor
and mobile-telephone markets.
Analysts forecast net profit of 1.64 billion euros ($1.61 billion), or 4.73
euros per share, when Philips unveils its 1999 results on Thursday, up from
541 million euros, or 1.50 euros a share, a year earlier. Analysts caution,
however, that these figures don't take into account the 375 million euro
cost of restructuring Philips Consumer Communications in the wake of the
breakup of PCC-Lucent BV, its joint venture with Lucent Technologies
Inc.
"Philips is certain to come with very good figures, but these are less
stunning if one takes the restructuring cost into account," says Jan Coen
Balt, an analyst with Effectenbank Stroeve NV. Discounting the
restructuring cost, Mr. Balt has calculated per-share net profit for 1999 of
3.22 euros.
Analysts said the strong performance was partly due to the way the
company invested the 6 billion euros in proceeds from the sale in 1998 of
PolyGram and its car-systems unit. "The investments in medical systems,
semiconductors and components were spot-on -- the right timing, the right
sector and the right company," Mr. Balt says.
In addition, Philips's minority stakes in various other companies, including
ASM Lithography, Taiwan Semiconductor Manufacturing Co. and
Seagram Co. have appreciated considerably over the past year.
The performance has prompted Philips shares to nearly triple over the past
year, closing Tuesday at 171 euros, down 6.05 euros on the day.
Attention is likely to be focused on whether the company was successful in
breaking even in last year's fourth quarter in its long unprofitable
consumer-communications unit, which makes mobile phones and pagers.
Philips said in its third-quarter report that it had "moved closer" to breaking
even in consumer communications. The company has cut costs by reducing
the number of its platforms and the amount of components in each phone,
forging close ties with telecommunications operators, and investing in
software.
Analysts also expect sharply higher profits in the company's
consumer-products division as a result of its greater emphasis on digital
technology. Encouraged by positive results reported recently by Sony
Corp., analysts say Philips is likely to have had success with products such
as its digital videodisk players. The company's semiconductor unit is
expected to show weaker results than its 1998 net profit of 766 million
euros because of design problems in the third quarter, yet analysts predict
that this will be balanced by the turnaround of California-based chip maker
VLSI, which the company acquired last year for $1 billion (1.02 billion
euros), and they say there are signs of a significant pickup in the
semiconductor market.
Analysts predict a 21% year-to-year increase in fourth-quarter
semiconductor profit, to 170 million euros. "What's interesting are
semiconductor prospects going forward, how well VLSI is coming along,
and volumes in the CDMA market," says Jane Pearce, an analyst at
HSBC Securities. CDMA is a digital standard for mobile communications.
In components, Philips is also likely to show improved results. Analysts
attribute the turnaround at Philips's liquid-crystal-display joint venture with
Japan's Hoisden to booming demand for flat-panel displays for products
ranging from mobile phones to televisions. Analysts say the performance of
components was also helped by Philips's joint venture with LG Electronics
of South Korea, announced last May. |
