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Philips flags in Q2 – jam tomorrow?

The giant's old problems don't seem to change

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Philips Group's second quarter was far from Earth-shattering: sales growth was a mere 1 per cent over the year-earlier quarter. This was thanks to North American sales, since there was no growth in Europe, and the market in Latin America is depressed. Philips employs 228,000 people. Sales declined 2 per cent in Q2 to 7.3 billion euros, with profits declining 42 per cent to 271 million euros, following the sale of Polygram and some one-time charges. The sales growth rate for the last five years is only a little over 5 per cent/year. Net income was over 2 billion Dutch guilders for 1994 and 1995, 600 million guilders in the red for 1996, 5.7 billion guilders in the black 1997, and a much improved 13.3 billion guilders in 1998. Cash at the end of June was 3.648 billion euros, but the debt reduced this to just 162 million euros. The 31 December 1998 cash level was nearly double this. Sales in the consumer products sector - Philips biggest sector by far - were up just 6 per cent in 1999, while the semiconductor sector has fallen 6 per cent, and components fell 1 per cent. Geographically, the US accounts for 23 per cent of sales, followed by Germany with 9 per cent, the UK 7 per cent, followed by China, France and the Netherlands. The 50-50 joint venture with LG Electronics of South Korea for active matrix liquid crystal displays is expected to be finalised this quarter: immediate profits are anticipated. Despite Philips innovative achievements, its growth rate has been very slow. It would appear that there would be considerable merit in splitting the Group into separate businesses, with separate boards, so that more and better attention could be given to the dynamic businesses, and so that mature businesses like lighting were not allowed to drag down the results of the IT businesses. ®

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