Overcapacity in chips and liquid-crystal displays (LCDs) depressed first-quarter profit at Dutch electronics group Philips Electronics, sending its shares 4 percent lower on Monday. Net profit at the world's biggest lighting maker and Europe's top consumer electronics producer was 117 million euros ($150.6 million), against an average expectation of 156 million euros in a Reuters poll of 24 analysts.
In the year-earlier period, net profit was 550 million euros, boosted by results from unconsolidated companies at the firm, which is also a top-three maker of hospital equipment and Europe's number three in semiconductors.
This quarter, however, the sizeable stakes held by Philips in companies such as South Korea's flat-panel maker LG.Philips LCD and Taiwan contract chip producer TSMC turned in only 22 million euros, versus 457 million a year earlier and analyst expectations of 50 million, as selling prices of their products slipped due to overcapacity.
"Results came in at the lower end of market expectations and fell clearly short of our forecast. We have to reduce our 2005 estimates and we need to rethink our current 'add' recommendation," Daan Muusers at broker FBS said in a note.
Philips shares were 3.8 percent lower at 19.25 euros at 1000 GMT, underperforming a 2.6 percent weaker Eurotech index, amid general weakness in tech stocks after last week's disappointing results from South Korea's electronics group Samsung and US-based computer group IBM.
Philips' own operations performed in line with expectations, however, with 193 million euros of operating profit, against analyst forecasts of 198 million euros and 218 million last time.
All five core business units were profitable, including the volatile Semiconductors and Consumer Electronics units, which generated 14 million and 46 million euros of operating profit respectively - it was the first time since 1998 that the consumer electronics unit was profitable in the first quarter.
Consumer Electronics, Philips' largest business unit, generating one third of total sales, was boosted by a 29-percent sales increase in North America where thin televisions and set-top boxes flew off the shelves.
With an operating profit margin of 1.5 percent at consumer electronics, Philips said it was on track to achieve its 4 to 4.5 percent target by the end of 2005. "I am pleased with the progress being made in Consumer Electronics," Chief Executive Gerard Kleisterlee said in a statement.
Group sales were flat at 6.635 billion euros, against expectations for a 1.6 percent increase, dragged down by weak demand in Europe where economic growth is slow.
"At this moment we see some weakness in the European market, in consumer electronics but also in appliances. We see it in a number of countries," Chief Financial Officer Jan Hommen said.
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