Philips to close one-third of plants
By Reuters
Special to CNET News.com
November 2, 1998, 7:50 a.m. PT
Philips' cost-cutting chief executive Cor Boonstra
announced today that the electronics giant would
close up to one-third of its plants by 2002 to create
a leaner structure and adapt to an ailing world
economy.
Boonstra's suggestion that Philips Electronics NV
had "built too big a production capacity for
requirements" sent a shiver through Philips' work
force of 256,000 but propelled its shares some 9
percent higher in Amsterdam trading.
On the New York Stock Exchange, Philips shares
jumped $3.625 to $58.875 in composite trading.
"We said at the
beginning of the year we
wanted to address our
manufacturing
infrastructure and reduce
the number of our sites,"
company spokesman
Ben Geerts told Reuters.
Philips has shut 25 factories since January 1, and
another 18 are earmarked for closure by the end of
the year. "By the end of this year we will have gone
from 269 plants to 226. In 2002, we want to have
between 160 and 170," Geerts said.
He would not say what impact the streamlining
would have on the company's work force nor
which sectors and geographical regions would bear
the brunt of the cutbacks.
Dutch unions urged Philips management to come
clean on its plans and warned they would fight any
drastic restructuring.
Analysts said Philips was clearly responding to
diminishing consumer confidence in some of its
major markets, including the United States, and
they were in no doubt as to where the ax would
fall.
"Components and sound and vision," said Corneille
Couwenberg, an analyst at Dutch bank ABN
AMRO. "In Italy something has to be done, the
United States has to produce more efficiently, and
Brazil..."
"The closures will be in the high-cost
areas--Europe and the United States," said another
analyst at a leading European bank. "Consumer
electronics will be hit because it is easy to find
components suppliers there."
One-third of manufacturing sites does not equate
with one third of production capacity. Older and
smaller plants would be the first to be mothballed,
analysts said.
Boonstra has won a reputation as a hard man since
he took over as Philips chairman in October 1996,
pledging to weed out money-losers,
underperformers, and noncore operations.
Over the past two years, Philips has disposed of
more than 20 businesses, many of them built up
during the time of former Chairman Jan Timmer.
Divestments include music and entertainment
company PolyGram NV--sold to Canada's
Seagram earlier this year in a $10.4 billion
deal--and Germany's Grundig.
Last month, Philips abandoned one of Boonstra's
own projects--a money-losing telecommunications
joint venture with Murray Hill, New Jersey-based
Lucent Technologies. The costly experiment was
the main cause of around $400 million in losses at
the Philips Consumer Communications division this
year.
Geerts declined to say what impact the latest
cutbacks would have on Philips' sales and profit
figures in the medium term.
Philips is likely to put some of its substantial war
chest into new buys, primarily in medical products,
semiconductors, and lighting. Analysts said the
group would probably pick off small companies
like recent medical acquisition ATL Ultrasound.
Boonstra said Philips was also on the lookout for
global partnerships with electronics manufacturers,
unbowed by its failed venture with Lucent. Analysts
predicted the next foray would be in the
development of new technology: palm-top
computers, flat screens, or new communications.
"In semiconductors they are well positioned. They
are well positioned in lighting and medical systems.
They really have to do something about their
consumer electronics. If they get that right, the
company will be a strong buy," said Gijsbert
Groenewegen of London-based The Europe
Company.
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