Another towel being thrown???
Philips Signals It May Sell or Spin Off Chip Unit (Update3)
Dec. 15 (Bloomberg) -- Royal Philips Electronics NV signaled it may sell or spin off the semiconductor unit, Europe's third- largest chipmaker, to invest in medical equipment, lighting and small appliances. The stock had its biggest gain since January.
``There are various M&A options we will explore,'' Philips Semiconductors Chief Executive Frans van Houten said on a conference call with reporters today, declining to elaborate. ``Scale will matter for long-term success'' as he predicted global chipmakers will consolidate in the next five years, he said.
Separating the semiconductor business is the latest move by Chief Executive Officer Gerard Kleisterlee to take the company away from businesses that are prone to swings in demand for consumer products. Philips yesterday cut its stake in its LG.Philips LCD Co. flat-screen venture to 32.9 percent from 37.9 percent. Philips is investing in the lighting, appliances and medical systems divisions to spur sales growth.
``The move makes sense as the semiconductor industry becomes more mature with lower growth rates,'' said Duco Frie, a fund manager who oversees $180 million at Nyenburg Asset Management in Amsterdam, including Philips shares. ``In the long run this is positive for Philips as it will make the company more stable.''
Shares of Philips rose as much as 1.06 euros, or 4.2 percent, to 26.35 euros and traded at 26.17 euros as of 9:41 a.m. in Amsterdam. Before today, the stock had risen 30 percent this year.
`Major Step'
Amsterdam-based Philips, also Europe's largest maker of consumer electronics, will ``create a separate legal structure for its semiconductors business,'' it said in a statement. Setting up a separate entity will take ``well into the second half of 2006,'' Van Houten said on the conference call.
``This is something that investors have recommended for several years,'' said Guenther Michael Hollfelder, an analyst at HVB Group in Munich, who rates Philips ``neutral.'' ``After the many things that Philips has done in past years to reduce its volatility, this is an important and major step continuing in that direction.''
Operating profit at Philips's chip unit dropped to 90 million euros ($108 million) in the third quarter from 179 million euros a year earlier. Sales rose 2 percent to 1.19 billion euros in the quarter. The unit makes chips used in Samsung Electronics Co. mobile phones, Sony Corp. televisions, DaimlerChrysler AG's Mercedes cars and Apple Computer Inc.'s iPod music players.
Infineon Spinoff
Splitting off the semiconductor business would mirror a similar move by Siemens AG, Europe's largest engineering company and a competitor of Philips in areas such as medical equipment and light bulbs. Siemens in 1999 spun off its chip unit, named it Infineon Technologies AG and sold shares on the stock market in March 2000. Siemens still holds about 18 percent in Infineon.
In Europe, Philips trails Infineon and STMicroelectronics NV.
``I expect consolidation to occur,'' Nyenburg Asset Management's Frie said.
Siemens chose to get rid of the chip business to make its main business, which includes trains, power turbines and automation equipment, less susceptible to the earnings swings that are more common to the semiconductor than the engineering industry.
Infineon Combination?
Combining the unit with ``Infineon would be a possible option, and a partnership would provide an opportunity to spread the risks,'' said Hollfelder at HVB Group, who rates Infineon ``outperform.'' ``The companies don't have too many overlaps, and combining forces would create a counterweight to chipmakers in the U.S. and Asia.''
Infineon has only had two annual profits since it started trading in Frankfurt in 2000. The company has been hurt by earnings swings at its memory-chip division, which accounted for the bulk of losses accumulated in past years. Infineon last month said it will split off its memory-chip unit, which accounts for 40 percent of total sales, by the middle of next year.
Shares of Infineon, which tripled from their initial public offering price of 35 euros in the year the IPO, fell to as little as 5 euros in 2002. Today, the stock feel 1 cents, or 0.1 percent, to 7.71 euros in Frankfurt, making it the third worst performer on Germany's DAX 30 benchmark index this year.
The Dutch company also will appoint the current heads of the company's five product divisions as members of the management board as of April 1 next year. These appointments will be proposed to the general meeting of shareholders on March 30.
Jouko Karvinen runs Philips' medical systems division, Andrea Ragnetti the domestic appliances unit and Rudy Provoost heads consumer electronics.
Ad Huijser will retire from the board of management on April 1, the company said. He will be succeeded as chief technology officer by Rick Harwig, the current head of Philips Research.
After the changes, the board of management will have eight members, up from the current four. Huijser's successor Harwig will move to what the company calls the group management committee, the level below the board of management.
To contact the reporter on this story:
Joost Akkermans in Amsterdam at jakkermans@bloomberg.net
Last Updated: December 15, 2005 03:44 EST |
