Philips Comments on Weak Flat Panel Sales and Its Consumer Electronics Business

| About: Koninklijke Philips (PHG)

On Philips Electronics' (NYSE:PHG) Q3 conference call, CFO and Executive VP Pierre-Jean Sivignon commented on weakness in flat panel sales and other matters pertaining to its consumer electronics division:

Sales in Consumer Electronics on a comparable basis declined by 1%. There was, however, continuing growth in connected displays and peripherals and accessories. The margin in the quarter was 2.2% which is higher than what we recorded in the second quarter. This positive margin development in spite of the difficult market circumstances at the beginning of the quarter is a tribute to the robustness of the business model and to our focus on margin improvement...

Q - Janardan Menon, Dresdner Bank

Your statement that ‘as anticipated, growth in flat panels showed signs of deceleration’ – can you just clarify that comment? What kind of deceleration are you seeing?

A - Pierre-Jean Sivignon

You remember that this is on the back of a very strong Q2. There was a high level of expectation because of the world cup. In particular, in the early part of Q2. Obviously the market knew that Q3 would be a bit of a slowdown in that particular domain.

I have to say that our connective display, which includes that particular LCD offering, did well because we ended Q2 with an inventory that was under control. There was an anticipated slowing down of the market. In Philips, we tried to isolate ourselves as much as possible from revenue to guide you on margin and we finished Q2 with a controlled inventory, which enabled us to have a Q3 where year on year our connective display improved compared to the year before...

Q - Thomas Brenier, Societe Generale

My second question would be on consumer electronics. I just noticed the number of employees is up significantly from Q2, I think 10% Q over Q. Is there something that explains this change?

A - Pierre-Jean Sivignon

Yes, I think that is essentially seasonal. As you know, in Consumer Electronics our model is very different. One of the reasons why we have a very low asset base and a low account which is open to fluctuation up is because we stripped off our business model essentially from factories and when we need to we adjust upwards on an as-needed basis. Basically, it is done via temps and in a way which can almost be treated online the following quarter. Don’t read more than the fact that we have strong activity versus what we had expected in Q3, which by the way translates in the margin of Consumer Electronics and should not be seen as an increasing fixed cost looking forward.


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