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Philips Chief Cuts Additional 2,200 Jobs as Economy Worsens

Royal Philips Electronics CEO Frans van Houten
Frans van Houten, chief executive officer of Royal Philips Electronics NV. Photographer: Jock Fistick/Bloomberg

Royal Philips Electronics NV said it will eliminate 2,200 additional jobs to wring an extra 300 million euros ($383 million) in savings from the world’s largest lighting company as economic conditions deteriorate.

The measures, designed to address inefficiency in the health-care and lighting divisions, bring the cost-cutting target to 1.1 billion euros by 2014, Amsterdam-based Philips said today. It’s targeting an extra 50 million euros in savings for this year, Chief Executive Officer Frans van Houten said.

“I already flagged in July that the economy is in worse shape than before, and that statement actually is pretty accurate,” van Houten told reporters ahead of presentations to investors in London. “This will make us more agile and competitive.”

Van Houten, now in his second year at the helm, is responding to tougher competition and a slowdown in demand that’s spurred competitors such as Siemens AG to examine its cost base. Philips had already targeted 4,500 job losses, and the latest measures will focus predominantly on lighting and health care operations in areas including marketing and information technology.

Philips employed about 121,900 people at the end of last year, with 44 percent of the total working in the lighting business and 31 percent in health care, according to its annual report.

Targets Intact

As part of the cuts, Philips will streamline management and improve margins by saving on the purchase of raw materials, the CEO said. The deeper cuts aren’t essential to meet margin goals, he added. Philips has a target to lift earnings before interest, taxes and amortization to 10 percent to 12 percent of sale by 2013, on revenue growth of 4 percent to 6 percent.

“Philips is on track to deliver the guidance, irrespective of the current macro environment,” said Martin Prozesky, an analyst at Sanford C. Bernstein. “Therefore the company’s earnings trajectory is primarily in under its own control.”

Philips rose as much as 27 cents, or 1.4 percent, to 19.3 euros and traded at 19.06 euros as of 10:41 a.m. in Amsterdam. The inventor of the compact disc has climbed 18 percent this year, for a market value of almost 20 billion euros. Siemens, expected to introduce its own purge on costs next month, rose 0.2 percent to 77.86 euros in Frankfurt.

Spending on research and development, as well as on sales, will remain intact, van Houten said. The CEO has vowed to change the culture in the company to speed up the process of bringing products to the market such as electrical toothbrushes and wake-up lights.

After transferring an unprofitable television operation to a joint venture, Philips is reviewing “various business models” for its $2 billion audio and video consumer electronics unit as demand for DVD and MP3 music players fade.

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