Royal Philips Electronics NV, 50 years after unveiling the compact cassette for music mixtapes, agreed to sell its audio and video unit to focus on more profitable cancer scanners and energy-savings light bulbs.
Japan’s Funai Electric Co will pay Euro 150 million ($202 million) in cash and a license fee for the lifestyle entertainment unit, said Amsterdam-based Philips, which also invented the compact disc with Sony Corp. The deal is part of a revamp that helped quarterly profit beat analysts’ estimates.
Philips CEO Frans van Houten is pushing the manufacturer into high-margin areas such as lighting products that save energy and health- and wellness offerings to move away from its consumer-electronics past. The Philips veteran, now almost two years at the helm, is working through a overhaul to save Euro 1.1 billion and cut 6,700 jobs.
“Lifestyle entertainment has been an absolute underperformer in the consumer lifestyle business,” said Rabobank analyst Hans Slob, who has a “buy” rating on the stock. “It’s definitely positive news Van Houten is taking more steps to improve the margins, by divesting this low-margin business.”
Beard trimmers
Philips rose 2.9 per cent to Euro 2.57 in Amsterdam trading as of 11:53 am, valuing the company at Euro 21.6 billion.
The stock had gained 22 per cent in 2012, while German rival Siemens AG rose 11 per cent and General Electric Co of the US increased 17 per cent.
The deal for the audio unit will probably close in the second half of 2013, while the video business will transfer in 2017 because of intellectual property licensing arrangements, Philips said.
Funai Electric’s license agreement will last an initial period of five and a half years, with an optional renewal of five years.
Philips’ consumer business has shrunk over the years as customers flock to competitors such as Sony Corp or Apple Inc for mobile communications and music devices. The company’s remaining consumer division will focus on health- and wellbeing products such as beard stylers and grooming kits, electronic toothbrushes, coffee machines and kitchen appliances.
| THE END OF AN ERA Philips is selling its audio and video business to Japan's Funai. This brings the curtains down on a firm considered a pioneer in the segment. A look at some of the consumer products and technologies it has given us |
| Radio: Philips started manufacturing radios in 1927. By 1933, it was the largest producer of radios in the world, the company claimed |
| Television: Philips began experimenting with television technology in 1925 and began broadcasts in 1946. In 2007, it introduced Ambilight technology for TVs |
| Electric shaver: Philips launched its first electric shaver in 1939. But the triple-headed Philishave razor came only in 1950 |
| Audio cassette: The popular compact audio tape cassette was invented by Philips in 1963 |
| VCR: In 1972, Philips gave the world its first video cassette recorder (VCR) for home use |
| Compact Disc: The compact disc (CD), which revolutionised the way people listened to music, was introduced by Philips in 1983 |
| DVD: In 1997, Philips cooperated with Sony to bring out the digital versatile disc (DVD). The company followed it up with the DVD+R and a DVD-recorder in 2000 |
Price-fixing fine
Fourth-quarter earnings before interest, taxes, amortisation and one-time items rose 50 per cent to Euro 875 million, beating the average estimate by analysts for Euro 866 million.
Sales gained 6.7 per cent to Euro 7.16 billion. Health care revenue rose 7.1 per cent, while lighting sales surged 9.2 per cent. Philips plans to pay a dividend of 75 cents per share.
“Philips’ fourth-quarter earnings are a solid step,” said William Mackie, an analyst at Berenberg Bank. “They show a progressive margin improvement with growth coming from health care and positive surprises with the lighting unit as consumer luminaires and lumileds were profitable in the quarter.”
The company is ahead of its own cost-savings plan as it lowered expenses by Euro 471 million in 2012, Van Houten said in an interview on Bloomberg Television’s “Countdown.”
“We are most proud of the underlying profitability improvement. We are actually a little bit ahead of plan,” he said. “We continue to lower our overhead costs so that we can focus on what we’re good at.”
Health care demand
Philips competes with Siemens AG and General Electric Co in health-care equipment such as medical scanners as well as in lighting. Siemens and GE posted quarterly results earlier this month that beat estimates, partly as a result of a rise in health-care orders with growth coming from emerging-markets such as China and stronger-than-expected orders in US.
