Philips Cedes Control of TV Business to Hong Kong's TPV, Retains 30% Stake

Royal Philips Electronics NV will cede control of its 80-year-old television unit to an Asian contract manufacturer, joining European conglomerates including Siemens AG (SIE) scaling back consumer electronics as prices decline.

Philips will bundle its TVs, which the Amsterdam-based company first produced in 1928, into a partnership that will be 70 percent owned by Hong Kong-based TPV Technology Ltd., it said today. Philips will retain the rest and receive royalties of at least 50 million euros ($72 million) annually starting in 2013.

Chief Executive Officer Frans van Houten, who took over at the start of this month, said he started exploring a new strategy for TVs after realizing that a simple “tweak” would not have stemmed years of losses. Philips lost 87 million euros from televisions in the first quarter, and van Houten said today he’s not yet satisfied with the company’s performance and will step up investments.

“It’s a positive surprise van Houten has fixed this problem so fast,” said Theodoor Gilissen Bankiers analyst Jos Versteeg. “Van Houten certainly isn’t wasting any time.”

The Dutch company reported first-quarter net income of 137 million euros today, down from 200 million euros a year earlier. Analysts surveyed by Bloomberg had estimated profit of 165 million euros. Sales rose 6.2 percent to 5.26 billion euros.

Philips shares were down 22 cents, or 1 percent, at 20.87 euros as of 3:10 p.m. in Amsterdam.

Top Priority

Moving TVs into a venture accelerates a transformation of the Dutch company in the past decade from a diversified conglomerate into a manufacturer of lighting, health-care products and consumer electronics including toothbrushes and electric shavers. Philips sold a semiconductor business in 2006, got out of mobile phones, and sold a personal-computer monitor business to TPV for about $358 million in 2004.

Van Houten had made fixing the TV division, which employs 4,000 people, his top priority, after his predecessor struggled to turn it around for a decade. Heading for its fifth consecutive annual loss, the television subsidiary has suffered as Sony Corp. (6758) and Panasonic Corp. (6752) cut prices to combat local Chinese suppliers.

Philips was among the last remaining mass-market producers of televisions in Europe, a niche now largely occupied by luxury manufacturers including Loewe AG (LOE) of Germany and Bang & Olufsen AS from Denmark. Siemens and Nokia Oyj (NOK1V), the world’s largest maker of mobile phones, made televisions before giving up production to narrow their focus.

As part of the transaction, Philips has an option to sell the remaining 30 percent shareholding in the joint venture any time after the sixth anniversary of the completion.

‘Unlocked Potential’

Philips’s consumer division, its largest by revenue, had operating profit of 104 million euros in the first quarter, compared with 162 million euros a year earlier. By contrast, earnings from health-care equipment rose to 138 million euros from 103 million euros.

“Philips has a lot of unlocked potential,” Van Houten said on a call. “We have pockets of excellence. As you have seen in the first quarter 2011 figures, our course and speed are not yet satisfactory.”

To unlock this potential, Van Houten overhauled management to improve accountability and communication between local teams on the ground and division heads. He pledged today there will be “money on the table” for those operations that need it and goals will be tweaked in the second half.

The company has a target for earnings per share to grow at twice the rate of sales until 2015 as Philips focuses on more profitable lighting and medical products and faster-growing markets including India and Brazil. Revenue excluding acquisitions, disposals and currency shifts will increase 2 percentage points faster than global economic growth, Philips said when it set the goals.

Van Houten said the company predicts “headwinds” in 2011, citing the Japanese earthquake, which will affect revenue and the company’s supply chain. The effects from the quake, which is disrupting shipments from some suppliers, will become most pronounced in the third quarter, Philips said.

To contact the reporter on this story: {Maaike Noordhuis} in Amsterdam at mnoordhuis@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net

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