Philips’ outgoing top brass departed in good spirits this year. Gerard
Kleisterlee, president and chief executive, Pierre-Jean Sivignon, chief
financial officer, and Jan-Michiel Hessels, chairman of the supervisory
board all left just as the Dutch conglomerate reported its highest profit
margin in a decade. “I see a Philips that is in good shape,” Mr Kleisterlee
wrote in his valedictory 2010 annual report.
The new team has a darker vision. Philips said on Tuesday the profitability of
two of the company’s three divisions would collapse in the second quarter:
earnings before interest, tax and amortisation would be 60 per cent lower
than the same period a year ago in the lighting division and 70 per cent
lower in consumer products.
Investors, who were already more pessimistic than Mr Kleisterlee, marked the
shares down 13 per cent.
Weak demand?
Frans van Houten, the new chief executive, and Ron Wirahadiraksa, the new
chief financial officer, were smart to push out the bad news early but gave
investors little information to go with it.
A brief statement mentioned weak demand in western Europe for consumer
electronics and lighting, but this can hardly be the only problem. Rival
Siemens, which is about to float its lighting division, has not reported
similar difficulties.
More sweeping
Investors deserve to know why the short-term outlook has changed so suddenly.
But they are aware of the long-term problems: the consumer division has been
slow to innovate while being undercut by rivals in Asia; LED technology
threatens the lighting division. Philips is also too dependent on
slow-growing western Europe, which accounts for more than a third of sales.
The shares have underperformed both the FTSE Eurofirst 300 and Siemens by
about 30 per cent this year, but the new brooms still have plenty more
sweeping to do.
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