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To: westpacific who wrote (77727)	10/15/2002 12:28:07 PM
From: 2MAR$	Read Replies (2) \| Respond to of 208838

UPDATE 5-Philips<PHG.AS> Q3 losses narrow, trims outlook (Updates shares in paragraph 14) By Jana Sanchez AMSTERDAM, Oct 15 (Reuters) - Europe's top consumer electronics maker Philips posted a smaller third-quarter loss on Tuesday thanks to cost-cutting, but said its key chip business may not see any sales growth for the rest of the year. Chief financial officer Jan Hommen said the chip division would post a loss in the fourth quarter and that orders there may only grow slightly, if at all. Chief executive Gerard Kleisterlee warned economic conditions remained weak. Investors shrugged off the negative comments and sent shares in Philips Electronics more than nine percent higher on relief there were no really nasty surprises in the report. "We are choosing to look at the report as a glass half-full situation," said asset manager Florian van Laar of Amsterdam brokerage Eureffect. Philips reported a third-quarter net loss of 330 million euros ($326 million), hit by a charge related to its investment in media group Vivendi Universal <EAUG.PA> but still less than half the 736 million euro loss it made a year ago. Despite continued difficult trading conditions, Kleisterlee said he still expected the group to post operating and net profits this year, excluding all special items. Previously Philips had forecast full-year net profit excluding only non-cash impairment charges. "Underlying performance in our businesses has improved, as a result of cost controls and better operating efficiencies, which is fundamental as we do not see much of an economic improvement in the near future," Kleisterlee said. Hit by weakening demand, the Dutch conglomerate last year made a record 2.6 billion euros loss as the semiconductor market suffered its worst ever decline. COST-CUTS KICK IN To counter this crisis, Philips cut staff to about 183,000 from about 231,000 in 2000 and targeted one billion euros of non-core assets for disposal. It said cutting overhead costs had saved it 176 million euros so far this year. The closely-watched operating profit -- or earnings before interest and tax (EBIT) -- rose to 135 million euros compared to a loss of 73 million euros in the third quarter of last year. According to a Reuters poll of 12 analysts the group was seen posting a 54 million euro operating loss with estimates between a loss of 260 million euros and a 93 million profit. "Clearly there's a tough macroeconomic environment, but they have been making some strides to cut costs and that is starting to show," said Goldman Sachs analyst Gunnar Miller. Philips closed 14.6 percent higher at 17.19 euros, giving the group a market value of about 22.62 billion euros. The stock has lost more than 50 percent so far this year and dealers said Philips was also recovering from a near six percent decline in the previous session ahead of the results which some investors had feared might contain a huge profit warning. Philips took a 387 million euro charge in the third quarter, mainly relating to the decreased value of its stake in Vivendi Universal <EAUG.PA> as internal turmoil at the French media giant added to existing debt concerns following aggressive expansion. Philips said it could take further charges in the fourth quarter, which could include an impairment charge on its stake in French computer services group Atos Origin <SEGN.PA>, which has fallen some 800 million euros in the quarter. Some analysts cautioned that the group's EBIT figure also included 60 million euros in special gains from the sale of some operations as part of the group's overall restructuring. CHIPS WEAK, LIGHTING STABLE Philips, Europe's third-largest chipmaker, competes with Franco-Italian STMicroelectronics <STM.PA> and Germany's Infineon <IFXGn.DE>. STMicroelectronics and Infineon's shares rose more than seven percent and nine percent respectively. In the semiconductor business, Philips's book-to-bill ratio fell to 0.74 from 1.0 in the quarter, showing the group is getting only 74 euros of new orders for every 100 shipped, a sign that the chip market is still far from a recovery. Still, the company's lighting and domestic appliance businesses reported profits of 141 million euros and 79 million euros respectively, both improving on last year's third quarter. "That's the advantage of being a conglomerate, as their stable, defensive businesses looked good," said ING Financial Markets analyst Eric de Graaf. But analysts were disappointed by the group's performance in the medical equipment division, where it made an operating loss of 11 million euros, and in the performance of unconsolidated companies, where most analysts had expected a profit. The division produces technologies for the medical field, such as patient monitoring and medical diagnostic imaging. Philips posted a four million euro loss in unconsolidated companies, a decline of 182 million euros from the previous quarter, due mainly to lower contributions from its liquid crystal display making joint venture with South Korea's LG Electronics <66570.KS> and from its 28 percent stake in Taiwan Semiconductor Manufacturing Co (TSMC) <2330.TW>. (Additional reporting by Christopher Borowski) ((Amsterdam newsroom +31 20 504 5002, melanie.cheary@reuters.com)) ($1=1.013 Euro) MORE * end of story *