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Philips Electronics (NYSE:PHG)

Q4 2005 Results Conference Call

January 23rd 2006, 3:15 AM.

Executives:

Pierre-Jean Sivignon, Chief Financial Officer

Gerard Kleisterlee, Chief Executive Officer

Analysts:

Uche Orji, JP Morgan

Antoine Badel, Credit Suisse First Boston

Matthew Gehl, Goldman Sachs

Bram Cornelisse, Merrill Lynch

Francois Meunier, Cazenove

Nicolas Gaudois, Deutsche Bank

Didier Scemama, ABN AMRO

Sean Murphy, Nomura International

Thomas Brenier, Societe Generale

Luc Mouzon, Exane BNP Paribas

Niels deZwart, Rabo Securities

Operator

Welcome to the Royal Philips Electronics Annual Results 2005, on Monday the 23rd of January, 2006. For the introduction by Mr. Pierre-Jean Sivignon, CFO of Royal Philips Electronics, all participants will be in a listen-only mode. After the presentation there will be opportunity to ask questions. If any participants have difficulty during the conference at any time please press the “*” followed by the “0” on your telephone for operator assistance. Please note that this call will be recorded and is available by webcast on the website of Royal Philips Electronics. I’ll now hand the conference over to Mr. Pierre-Jean Sivignon, please go ahead sir.

Pierre-Jean Sivignon, Chief Financial Officer

Thank you, ladies and gentlemen let me first welcome you to this conference call for the fourth quarter results of 2005 for Royal Philips Electronics. Gerard Kleisterlee is with me and together we will be answering your question. I will make a few introductory remarks and then open up the call for your questions.

This quarter, has been one which we are seeing more evidence that targets for the fiscal ‘06 being or will be met. Let me be more specific. Firstly, in Medical Systems we have seen excellent growth in the quarter in terms of sales and specifically in terms of order intake, which is a continuation of trend we are seeing during the year based on a renewed product range and excellent product capabilities. Well couple of items in the IFO that I would like to explain.

The results include the high cost for billing with a billing issue as listed as well as a provision to cover the cost to intend to settle the metrics. We have seen a €10 million negative impact of the Stentor acquisition, as a charge and related revenue delay. The order intake for the new iSite PACS from Stentor has been very strong giving us solid confidence. One development that we’ve seen is increasing growth in developing market, whether it’s a greater element of entry level products with lower margin. In order to deal with this, we need to accelerate our operational efficiency improvement action and these are, or this has our full attention.

Secondly in DAP; the excellent quarter has given a 6%comparable growth rate for the year and annual IFO of 16.3%. Consequently, a 7% annual growth rate target and IFO target of 15% to 16% are achievable based on our innovations.

Thirdly, in Consumer Electronics, the excellent growth is conformation that our innovation and renewal program is being rewarded. The quarterly IFO gives us 4.1% for the year excluding the gain on TPV and the restructuring costs. Consequently, the 4 to 4.5 IFO target from year onwards is looking good.

Fourthly, in Lighting, even though we saw some weakness to the north of our lamp business, we ended the year with comparable growth of 4%, and we are looking forward to commencing shipments of new products early in 2006. The IFO margin was a little short of what it would have like, further we see improvements in 2006.

In Semiconductors, we have had a good quarter in terms of growth and margin, which increases our confidence that the business renewal program would achieve its target. In other activities, we have announced disclosure of some businesses during the quarter and we are making good progress with others. I expect that we will make further announcements achievement.

Our cash flow has been very strong, even if we exclude the €615 sale as part of our LG Philips LCD holding. From these cash flows we used €788 million to base for our Lumiled’s acquisition and €724 million to buyback our own shares. Overall, this has led to net cash position of €806 million at the end of this quarter, which we will partly use complete the current share buyback, as well as to pay for the Lifeline acquisition which we announced late last week.

Inventory percentage of 11.4% bit higher than one year ago. However, when we correct the percentage for currency movement, we are at approximately the same level as one year ago. Apart from an underlying improvement in the results from non-consolidated company, we have taken charges totaling €458 million to write-off a book value and commitments to LCD. As we have already mentioned, Philips will not inject further capital in LCD.

Earlier ago, we set ourselves a management agenda, which was published in the annual report. And we believe that the vast majority of it has been implemented. We have set ourselves to new agenda for 2006. Finally, we have proposed an increase in our dividend for the second year in succession, this year by 10% based on increasing our dividend payout ratio from 25% to 30%, to a bandwidth of 25% to 25%. Let me now open the call for your questions with Gerard and myself would try to answer as fully as possible.

Question-and-Answer Session

Operator

Thank you sir, if any participants would like to ask a question please press the “*” followed by the “1” on your telephone, if you wish to cancel this request, please press “*” followed by the “2”. Would you please limit yourself to one question, with a maximum on a one follow up, this will give more people the opportunity to ask question. If you are using speaker equipment today, please lift the handset before making your selection. There will be a short pause while the participants register for questions.

The first question comes from Uche Orji. Please state your company name followed by your question.

Q - Uche Orji

Good morning my name Uche, JP Morgan. A couple of questions, first from medical, I understand your explanation about the entry products into the emerging markets. What, apart from just improving your efficiency, how much contribution will NAVTEQ help make an, healthier guidance margins. And also if you can give us some margin guidance for 2006, that will be helpful?

A - Pierre-Jean Sivignon

I think today NAVTEQ still have a limited impact on the margins in terms of shrinking our cost base and addressing the product portfolio we want that part reserves dissolved. The first product actually which NAVTEQ is going to rollout that first rollout took place quite recently and we should start the next year, the impact of the NAVTEQ, I would say in our margin and that should be indeed and that reminds the shortest to contribute to restart the improvement of IFO margin from next year.

Q - Uche Orji

At this point, you are not able to give us any guidance for margins for the full year?

A - Pierre-Jean Sivignon

You mean for the…

Q - Uche Orji

For medical.

A - Pierre-Jean Sivignon

For medical, yeah in case of, thought for medical, I think the guidance we gave to you two months ago actually is to revolve; we want to add 1 to 2 points of margin in the course of next couple of years to the margin of medical. So, we want actually to resume, the progress of our margin, probably next year.

Q - Uche Orji

In terms, for more question on the DAP the pitch strengthen up the revenues why not, it was probably below what the market was expecting for the margins was very strong. I understand you reiterate with your guidance. But is there any possible explanation as to why that’s happened this year, previous quarter, the revenue were okay but not as strong as expected. But the margins growth was particularly stronger but that didn’t level-off the revenue?

A - Pierre-Jean Sivignon

Well I think, essentially, the good improvement of the margin as well as, when you prompt to say about the revenues is depending, because I think, obviously, and relate these terms, the growth of each particular quarter might equally be sales and process but we are very pleased that you have to look back to your progress DAP dealing with new three and look of course, accordingly at the year, but that’s for the growth but as far as the margins concerned, I think probably the best explanation to give to you is a success of the shrinking I mean, as you know, we are, in that particular domain respond to margins and I think the good receptions of a new line shavers is certainly a good product explanations for your question.

Q - Uche Orji

Thank you very much.

Operator

The next question comes from Mr. Antoine Badel. Please state your company name followed by your question.

Q - Antoine Badel

Yes, good morning Antoine Badel from Credit Suisse. On the semiconductor division, could you please help us understand what are the margins in Q4, how much of that is the, seasonal top line strength and how much of that is the restructuring program which were implementing. And then, how do you expect semiconductor margins to evolve in 2006 on that basis?

A - Pierre-Jean Sivignon

Well I think what drove the improvement with semiconductor is obviously quite a bit valued in improvement of utilization rate, clearly its there as you’re seeing, we add a comparable growth of 9% which is obviously a quite significant in that particular industry. We improved the utilization rate as you can see from 81% to 83% the rates quite significant as well. The business when your program excel at its beginning as we’ve given you some numbers and we’ve said that it would actually be scattered over a period of 2 years. So that is really 2 more years to come. In terms of the improvement, I think that we gave you a guidance for the year of 2006, which should around I think 10% and there is something that we should, actually give you to deliver.

Q - Antoine Badel

And on the CapEx front, how much do you expect to spend for the group, as a whole this year and for the semiconductor divisions specifically please?

A - Pierre-Jean Sivignon

Well, we expect the CapEx overall to stay below 1 million, and I would say all-in-all, we’ve a continued reduction compared to what it is this year. And in terms of the mix, as you’ve seen, we have semiconductor globally taking a reliable portion of that CapEx all-in-all.

Q - Antoine Badel

And one last question if I may, you mentioned, you’d be saying a new management agenda for 2006, could you please give us some color on where your targets are going to be this year?

A - Pierre-Jean Sivignon

Yes, in terms of growth we absolutely stick to a 5% to 6% revenue growth and I just want to say one thing there, if you look at what we’ve done as an average over the last 3 years, actually we’ve been there, if you look at full size and if you exclude other activities, you could make a pre-calculation and see what’s on the other side to these, we will work that as well. So, in ’06, our intention is to deliver 5 to 6 and in terms of IFO percentage margin, as you’ve seen, our IFO margin has improved this particular ’05 since they actually still. Our objective is to be at 7 to 10 for ’07 and we want ’06 to be with the bridge between where we are today and that’s 7% with fourth quarter next year to be at a level and maybe us, precisely to be at 7 to 10 for ’07. So, those are the IFO objectives.

Q - Antoine Badel

Thank you.

Operator

The next question comes from Mr. Matthew Gehl. Please state your company name followed by your question.

Q - Matthew Gehl

Yes, with Goldman Sachs. First question on the lighting business, you mentioned that you have start to see some of revenue coming through from this increased R&D spends coming through in Q1. Could you go into just a bit of detail on when you expect the margins in lighting, to go back above the, the 13% level on a run rate basis and that already happened in Q1, or is that something that’s going to take, likely to the second half year, before you get back to that level?

A - Pierre-Jean Sivignon

Well, I think it would be gradual, the introduction was, the introduction of new products will be scattered actually on the first half of next year, obviously the one very important seems to be at LCD backlighting, which we will see in the next generation of flat panel displays for our Consumer Electronics. So that is a very important one for us. So I would say that this will obviously help us combine with some continuation of investment in Research and Engineering, we won’t just stop it immediately, we will be, I would say kind of, a soft planning there, because we will need to continue to invest in all those new products to continue to feed our pipeline stream of the operation basically is going to be gradual over the course of next year.

Q - Matthew Gehl

Okay and the second question, on a buyback program, it looks like you were quite aggressive in Q4, as far as repurchasing shares. Can you update us on how much remains within the buyback program, and what your initial thinking is as far as an additional program once that remainder is finished in 2006?

A - Pierre-Jean Sivignon

Yeah, actually, we have accelerated those yet, but of course, I think it does remains pretty much inline with the internal guidelines that we have given ourselves, which we’ve basically, in that to exceed a 10% float of any particular day. So the number of shares in total, ends up to second program which has been both, in the quarter, the second half was 46.8 million shares and to be more specific on the fourth quarter, we bought 30.9 million shares, or if you now talk for euros, we are actually deployed a total of €724 million on that program, on the fourth quarter and if you now look at the second half, we have been spared an amount of €1.71 billion on the full second semester. So, mathematically, we have a measure of €429 million to go on that second buyback program.

Q - Matthew Gehl

And what is your initial thinking to continue to be aggressive and use that often into Q1, Q2 or you’re going to be opportunistic what’s going to drive when that money, of course?

A - Pierre-Jean Sivignon

Yeah, finishing at the first program will actually, the second program which is a 1.5 billion that should take us probably around March, April, if we’re depending obviously on the speeder thing. But again, as I said, we will gear to the guidelines we’ve given ourselves, which is below 10% and as valued. As you know, we did now 2 programs we’ve launched in ‘05 as far as the launching yet another program in ‘06. I think that’s a good churn, which has not been made and we will see how these goes in ’06.

Q - Matthew Gehl

Okay, thank you.

Operator

The next question comes from Mr. Bram Cornelisse. Please state your company name followed by your question.

Q - Bram Cornelisse

Hi, good morning it’s Merrill Lynch. Pierre-Jean can I just comeback to something which you said as its great start of your instruction, you’ve said that the next greatest provision, we hope that, that would settle the matter is that, are you saying that we should not expect any further negative in medical anymore coming from that greatest start?

A - Pierre-Jean Sivignon

Yes, I think we have, as you know several issues that might quit, one we’ve certainly tried to update you on regularly, is the negotiation of settlements with customers. I think the important element of information on this particular quarter is that we have decided actually in accordance with MedQuist to book in our numbers which is reflecting actually the, the entry which was booked in MedQuist numbers to book a provision which is our best estimate of what the settlements with customers, that we of course, make with. So I think, this is an indication of 2 things. First, it’s an indication that some progress have been made by the MedQuist people with our customers that I think is one indication, the second indication is that, MedQuist has made a calculation of what as of today would be the best estimate of the cost to settle with these particular customers, and that entry has been in the booked in the numbers, this quarter. Is that the end of it, certainly that is the best estimate we have at this point for the litigation with our customers there.

Q - Bram Cornelisse

That’s very good, just to clarify it, I think there were several issues that the employees, is that, could that steep into the initiative going forward or is it includes the best estimate now as well in the numbers?

A - Pierre-Jean Sivignon

No, it’s not included, there is no issue, I would say there was no money related to employees, I would say included in the particular number, which has booked this quarter.

Q - Bram Cornelisse

Can I have one follow up on lighting space, I think in the past as well you spoke about the North American market not being that great actually. But the revenue, the comparable revenue growth is running around to 5% of guidance, I mean now get down to 1% is there anything of that specially going on and should it be going back up to 5, 10 again or how do you look at that?

A - Pierre-Jean Sivignon

Well I think Bram, one of the things for lighting, if you look at the growth of lighting on the year you obviously get a bit of a different story, each look indeed at the growth of lighting on the fourth quarter, that 1% on, obviously on the very contrast first quarter mix, days reflect the fact that we had a shorter quarter in terms of what they’ve, for the lighting business, we see something which, I mean an impact. Such all-in-all basically the, the growth of lamps was there for the full year and I would say I would look at the first quarter pretty much in the perspective of what the number reflected. Obviously, the other things, for that I am not repeating that because that’s something we’ve told you in the previous quarters, the issue of course, what you will see, it was very much fast for this consecutive quarter when you compared to last year.

Q - Bram Cornelisse

Okay. Thanks very much, that is helpful.

Operator

The next question comes from Mr. Francois Meunier. Please take your company name followed by your question.

Q - Francois Meunier

Hello everyone, its Francois from Cazenove. Just a quick question again on, on medical schedule, you are talking about a new potential increase of 100 to 200 basis points on your margin in the coming year up for medical, but should we look at 2005 earnings, excluding the one-off, which you just had on MedQuist and Stentor, in terms of an presence or excluding those, those one-offs?

A - Pierre-Jean Sivignon

Yeah, actually when we talk about medical margin we, we, nobody talk about excluding obviously, the one-offs, I think we should take some comfort as far as MetQuest is concerned on the fact that they are been capable of booking that particular entry. I think just when last quarter MedQuist, MedQuist revenue as we could see on Q4, came down, we are currently starting to regain that from customers and obviously we are stretching very much faster than on MedQuist. As far as the margin at medical excluding MedQuist for the year ’05 there is, in absolute numbers on the year, some progress. So I think, as a percentage, we have indeed a reduction percentage but if you look at it in absolute numbers, excluding the incidentials of ’04 which were golden metrics and MedQuist and if you exclude as well, the incidentials of ‘05 you could calculate that in absolute numbers that not, have actually gone up.

Q - Francois Meunier

And from this point, do you think margins could still increase by 1, 2 points in this…

A - Pierre-Jean Sivignon

No. Absolutely and, on back of that increases absolute terms in ’05, our objective as we have actually mentioned it to you at the earnings conference, two months ago certainly is to, is to add another couple of positive revenues to this direct guidance to the whole.

Q - Francois Meunier

And on the inventory basis, there were margins that you have in emerging markets?

A - Pierre-Jean Sivignon

No we are not, I think we, I think the one thing, which if anything is going faster than we thought is our growth. And we have that growth was very strong in revenue in Q4 as you’ve seen. What we haven’t talked too much about is growth of incoming orders which was quite significant, it was actually; it stood up. The first 20% in, in terms of incoming orders in Q4 and I think what we actually backed to is A) like that speed, we have to invest as well for this target is shifting more in Asia we’ve obviously, it was somewhere where our customers assign with, I would be at a slowest speed service agreements, so that had temporary impact on the mix we have between the service revenue and the product serve revenue, but that’s something which will come back to us of course, as our install basic rates will increase and relating as well, which in fact are they’re seen in the fourth quarter is the end of the integration as cost control. Stentor where we had not only some integration cost, but as we explained to you in the fourth quarter, we have as well to adapt to slightly different business model from the one we had in Philips. And finally, what we told you is that the customer is actually turn over, coming away from a previous product offering in the room, fact and they want to absolutely go for the new product offering. So we are facing a largest steep increase of the incoming orders on, on the actual new touch offering and that is something we have to cope features, we’re also ordered elements combine, give us some confidence for next year in our capability to bounce back in terms of, as a process of big technology.

Q - Francois Meunier

Thank you.

Operator

Our next question comes from Nicolas Gaudois. Please state your company followed by the question.

Q - Nicolas Gaudois

Yeah. Hello, Nicolas Gaudois from Deutsche Bank. Just to, first on medical for now and I think if your, your top line growth last year was of 7.8% and last year organic, now all the growth has been very steady as well, you just mentioned, we’ve growth for eyesight bookings as well. If you were to look at the top client over the next couple of years with your feeling could set the bow for many goal and how could you, could you give us a bit more clarity on which would be the more significant incremental contributors over, this is the, for it occurs because the MedQuist mutuals coming on, the renewed software offering, a pitch and record on this well, thank you.

A - Pierre-Jean Sivignon

Well I think the guidance we gave to medical was the growth of 6% we actually freezed on by that. If you look at our growth in the fourth quarter’05 you will see that it’s been as well. So, I mean, its the reality of it that next year if I had to say where the divisional kind of growth should come, I think we will continue to grow, we’ve gained much of share in, in ’05 probably I would say in IT and thanks to Stentor we should have some fact to grow on that particular side of the division. So, if I had to pickup one, I would say that in relative percentage compared to the others probably in IT we will see some faster growth and hopefully a steady business as well as we should benefit from the increasing stall base of this year. But we, again we see next year pretty much as the continuation of what has that had in the first quarter and we grew just about everywhere.

Q - Nicolas Gaudois

Okay great. And if just a kind of find whether there is, was there still, in terms of, previous questions, if I am just kind of words you’re saying that we larger install base of equipments for medical will generate enough services revenues potentially to offset the lower portion of services, across to serve to emerging market? Is that what you’d say?

A - Pierre-Jean Sivignon

No. No. No. That’s what, what I am saying, I am saying as you know service business is attracting better margin that our equipments sales business, or service business is in that 20 to 50 range. And our equipment business as you know is obviously below 10% so one year of service revenue is obviously contributing almost three times, one, what a euro of equipment’s sale contributes and what I am saying is that in ’05, we certainly have increased our install base quite significantly what I am saying as well that the stocking of the service businesses in particular in some case once the warranty period is over, BT is having some kind of a declared effect. So the goodie which I included in the fact that our install base of the equipment has actually increased, most goodies have to come. That’s what I saying, all-in-all in this second discussion.

Q - Nicolas Gaudois

Okay, alright. And last question briefly on the, on licensing, at a bit of a bump up in a, for Consumer Electronics, could you give us any guidance at ’04, the fourth coming quarters?

A - Pierre-Jean Sivignon

Yeah, the, the bump you refer to is leading to the fact that as you know, we’ve always have every year, you have this time is up during the, I would say the first quarter when you compare to last year, you have incidentals which are linked to the collection of fast due licenses, so if you remember that has impacted our last year, quite significant, last year when in 2004 quite significantly, which means that when you compare obviously those licenses for ’05 and ’04, ’05 is a bit of big advantage. Now if you exclude that those incidentals, the guidance we’ve given to you, which is 1.5% to 2%, right? All the revenue of Consumer Electronics over a full year, that is very much close and refer to 4.5% including that 1.5% to 2% of rollout is definitely, is our guidance for Consumer Electronics for 2006 and if you look carefully, by the way, at our 2005 numbers we, we were there. In terms of absolute numbers, now go your way from percentages you can use pretty much of €40 million throughout quarter of licenses and invest that kind of number we use internally.

Q - Nicolas Gaudois

Okay, thank you gentlemen.

Operator

The next question comes from Didier Scemama. Please state your company name followed by your question.

Q - Didier Scemama

Hi Didier from ABN AMRO. Good morning gentlemen, I would like to just comeback from medical I am sorry and then I have a few follow ups on semi. On the medical growth, you just maybe at the 6% as a growth target for revenues, I guess that’s excluding acquisitions.

A - Pierre-Jean Sivignon

Yeah, sure.

Q - Didier Scemama

All right? And then on, on second point, on the semi side, I was just wondering if you could give us a sense of the utilization rate you expect for the first quarter and more generally, I guess for semis and CE, what are inventory levels you see at major retailers in Europe and in US in this fusions of semis, at this time?

A - Pierre-Jean Sivignon

Sorry, I missed the end of your second question.

Q - Didier Scemama

My question was regarding inventories in the distribution channel and with retailers and CEs, what were you see those, are they satisfactory at this time?

A - Pierre-Jean Sivignon

Okay. Coming back to medical, yeah, the 6% is most definitely excluding acquisitions; as you know we will continue to look at acquisitions for medical, we will only move of course, create a value for us. So the 6% is clearly a pure organic number. To move to the question on the semiconductor, your first question is on utilization rate, we gained 2 points, 81% to 83%. Now sequentially, and that’s largely for similarity reasons, our Q1 will come down a bit, but nothing dramatic which is just the expression of usually a procedural week first quarter after a strong fourth quarter. To your question on inventory, no I think inventory is not an issue, we do not face an inventory situation as we might have faced in the beginning of the year 2005 and as you know in that popular industry, the customer is ordering at the very last minute, precisely, to avoid, I think, any kind of inventory and we have almost to deliver on the back of those very, very late orders, which unless in that situation, we’ve been for a couple of quarters, where we had very, very low visibility in that particular product division.

Q - Didier Scemama

Right and maybe just a point on the models, if you look at, miscellaneous one, I should say other activities and then, and then okay, did I think you’ve alluded in the presentation at reduced pension contribution in ’06 versus ’05 to 80 million. So should we look that an improvement or significant improvement losses in both of these division, taking to account the divestments and the reduced pension contribution?

A - Pierre-Jean Sivignon

Well, I think we’ve disclosed with on two things, I think you were there when, perhaps Rosendal made a presentation to you disclosing some details on what you included in there, so thanks to that presentation let me give you a little bit more information, yes, we’ve guided you well there, precisely, on debentures, so you can use that number which is indeed a reduction compared to 2005 number. To your question on the losses, on the so called corporate businesses, we have divested actually 5 of them in the quarter, the last 6 months. We will be, discontinuing a week MDS as you know and of course that will have an impact on that particular one, we will be reducing defy that, our losses. We still have one or two businesses, which on which we’ll keep an eye on and on which we will continue to update you in the course of 2006, so I would say, largely lesser tiers will continue to sell, we will improve the level of our losses and we will focus on one or two issues that we still have to look at very carefully in that particular segment.

Q - Didier Scemama

And just the final question then, on financial income for ’06, the cash instead of the business of TSMC, will that equal exit all in Q2 and second of all for those if you’d know at this time, whether you’re going to pay some taxes on those dividends.

A - Pierre-Jean Sivignon

The answer is yes for Q2. Do we pay some taxes there? I don’t think so.

Q - Didier Scemama

You don’t think so.

A - Pierre-Jean Sivignon

No.

Q - Didier Scemama

Okay. Pretty and thanks very much.

Operator

The next question comes from Mr. Sean Murphy. Please state your company name followed by your question.

Q - Sean Murphy

Hi, Sean Murphy from Nomura International. Looking at sales per region, it’s quite striking that comparable sales actually sell in Europe even though they were strongly 8% to 9% everywhere else. I’m wondering if there’s any accounting reason behind that or generally that’s the other markets that are doing so much better than Europe?

A - Pierre-Jean Sivignon

Well actually, well let me first talk about the other markets for a minute because we take some pride of having some growth of 90% in North America, 9% in Latin America and as we have 8% in Asia-Pacific, remember that Asia-Pacific has been a little bit weaker in the fourth quarter. As far as the Europe is concerned, it’s mostly, basically Western Europe which is a little bit slower and that’s essentially on to that I would say of semiconductor and other activities. And in the rates of the portfolio, including in that parts of the world as the portion.

Q - Sean Murphy

Okay, thank you.

A - Pierre-Jean Sivignon

And semiconductor of course is a geographic shift which is the reflection of the way the pieces we have organized, I mean, you’ve actually what you obviously see that the growth in that industry now has shifted to Asia which ended up in the 9% growth altogether we had for semiconductor on the quarter.

Q - Sean Murphy

Thank you.

Operator

The next question comes from Mr. Thomas Brenier. Please state your company name followed by your question.

Q - Thomas Brenier

Good morning Thomas Brenier from SG. On semiconductors could you, as I was assuming which end-markets will you supported to growth that would be my first question. And I would like to have an idea of shape outsourcing, production force on agents before, how it’s been changed from last year on this quarter?

A - Pierre-Jean Sivignon

Okay, I think the two verticals we grew everywhere in semi, I mean it was a strong quarter what are two particular ones which felt, there were mobile and home which had else this particular quarter, to your question of the percentage which was outsourced, I must admit, I don’t know that and I have not yet, I think we’ll to come back with the best one to give you a precise percentage, I don’t know that particular ones.

Q - Thomas Brenier

Okay and I’m going to forward medical just as a clarification, will the order intake the plus 15% in order intake that you mentioned in press release, is that for equipment and services?

A - Pierre-Jean Sivignon

No, its only, its actually only equipment and it is excluding a very large order, actually the reality of it we didn’t want to give too much detail because if we’ll say another order in Europe, I just can’t be too, too much more specific about that and if you exclude actually this order in that part of Europe, the total order intake of medical for the fourth quarter was 24% increase on a comparable basis, i.e., at comparable currency. So you can see that our order intake in Q4 is actually very strong. And this is as I said; excluding services that’s true equipment.

Q - Thomas Brenier

Okay and the mix between services and equipment in the revenues, can you specify from that?

A - Pierre-Jean Sivignon

It’s about 26% in service and the balance in equipment.

Q - Thomas Brenier

Thanks a lot.

Operator

The next question comes from Mr. Luc Mouzon. Please state your company name followed by your question.

Q - Luc Mouzon

Yeah, hi, it’s Luc Mouzon from Exane BNP Paribas. Maybe one question for Gerard on the acquisition policy maybe could you take the opportunity of difficult to come back on the lifeline portrait and about the rationals and synergies that you could anticipate very clear and especially looking at the business model which sounds to be more link to a subscriber base at this stage?

A - Gerard Kleisterlee

That is correct, you will remember from earlier communications that we have entered into a number pilot projects and with a solution that we call more FIFA where we did projects in United States and Europe, and to allow people to go home after the procedure in this case hard procedure earlier and we’re covering the home in vitamin and that’s a combination of technology that goes on, and medical support. Lifeline expense on that that gives us an install to subscriber base, the lifeline also and it gave us for a the disabled and the elderly to allow them to complete to live independently with a combination of some technology particularly communication, on wireless communication technology that we can have homes and service behind it and I think particularly we have the ability to rollout just a more than globally and link it with motive offering that we have pilots in the markets and where we got the very good response and been the, we look to scale further and that’s rational for the carrier position of lifeline.

Q - Luc Mouzon

Okay and just a follow up if you see still the some barrier in the medical market at the movement which sounds to, from the analyst point of view, its like a very expensive acquisition prices or do you still think that the, certainly maybe a bit more, not positive for you by and found some projects that is getting up because of the more and more with an affordable situation from your point of view?

A - Gerard Kleisterlee

I think if you look for some of the obvious targets in the market, so that also make themselves a take over kind of it, then you are looking at able to be set, a highly products, if not two highly product, but if you look carefully for things that the fit with your strategy, fit with your global position where you think we have the synergy that you still able to find companies that are reasonably priced and give us a sufficient opportunity to create value beyond the purchase price.

Q - Luc Mouzon

Do you think that we could still anticipate for the acquisition to come over to 2006?

A - Gerard Kleisterlee

You will anticipate further acquisitions to come, yes.

Q - Luc Mouzon

Thanks.

Operator

Your next question comes from Mr. Niels deZwart. Please state your company name followed by your question.

Q - Niels deZwart

Good mornings Niels deZwart from Rabo Securities. Couple of questions regarding to Lumiled, first of all, could you give us the amount of charges made utilization for Q4 and secondly, the press release also mentions negative impact of €44 million in 2006. I just like to clarify is that’s the overall contribution of Lumiled or just the portion accounted related amortizations. Those are my question.

A - Pierre-Jean Sivignon

Okay, to your two questions on Lumiled, the impact of integration across the Lumiled in the fourth quarter in the liking numbers is 10 million. So that’s the answer to your first question. Your second question relating to the contribution moving forward by Lumiled into the lighting number, the guidance we are given to you is, precisely to give you the specifics of the mutual accounting calculation, IT clicking between the portions would be in goodwill and the portion which will be in amortizable intangibles and what we are giving to user is the guidance on the quest of what amortization for 2006. With the even more specifics, this is of course not, total contribution of Lumiled, Lumiled will be what we told you, which is a higher pro objective was 25% from which we’ll need to be that these particular amount, these will be the contribution of Lumiled if it is in 2006.

Q - Niels deZwart

And then, this cost for short quarter, how long will these charges left some 44 million loss with us in 2006 and then a couple of years longer or how long will those extra month…

A - Pierre-Jean Sivignon

Well I think, with the overall, it’s a mix because it’s been evaluated by external parties and this will be scattered on an average 5 years starting December ’05.

Q - Niels deZwart

Okay and one final question if I may, your press release also mentioned in medical of course, higher end discussions in R&D finds also in molecular medicine, could you maybe give us some guidance on what you will do it, with that in 2006.

A - Pierre-Jean Sivignon

Well keep it flat.

Q - Niels deZwart

You’ll keep it flat, okay.

Operator

Once gain, ladies and gentlemen, if you would like to ask a question, please press the “*” followed by the “1” on your telephone. To cancel this request, please press the “*” followed “2”. We have a follow up question from Uche Orji.

Sorry Mr. Uche just canceled his request. The next question comes from Mr. Nicolas Gaudois. Please state your company name followed by your question.

Q - Nicolas Gaudois

HI, Nicolas Gaudois from Deutsche Bank. Just going back to, to semi could you, could you give us any commentary on how much of the €250 million savings you talked about in September, you realized so far and how much order you think you’ll cover by at the end of ‘06 because when you look at your incremental operating margins over the last two quarters, its very clear but some of that of course, is coming from cost savings, probably faster but one would have initially found?

A - Pierre-Jean Sivignon

Well, Nicolas I think, in fact to give you, the full size number because if you see these things are little bit more blur I think, our view internally is that fourth and first quarter are still only a small impact from that plan which you remember was fully in the second quarter of ’05. So if you would like the in that particular plan to read the portion which is whether make any call which comes from the reduction of the depreciation and the lot of that reduction depreciation will start impacting us in 2006. The rate of course comes from reduced operating expenses we focused engineering expenses and all that will be I would say scattered, as of ’05 is concerned I would say it gives small and the vast majority of the impact of that plan is to come in the ’06 and ’07.

Q - Nicolas Gaudois

Okay great and some of the conference call, we had in December on the announcement on semis, I mean as you, have you viewed your goals in either way or anyways in terms of strategic options of semis going forward?

A - Pierre-Jean Sivignon

No. I think we, I think we’ve been, I can give you an update, I mean last time we talked was fairly a month ago. We’ve told you we launched two things in Paulo, one which is what I would call it is a practical job out which involves a huge amount of work at, in all kind of domains and we said that we would like to be done with this approach. Sometime the later part of 2006, I don’t think we won’t reconfirm that, we started now of course, in Paulo, of course, we will engage in discussions. We have objective of all those getting up, but, its getting up there are number of ways to get up. And at this particular point of time, I think it’s too early to give you any update on that. But nothing changed in that sense compare to the objectives and the agenda that we gave to you a month ago.

Q - Nicolas Gaudois

Thank you.

Operator

The next question comes from Mr. Didier Scemama. Please state your company followed by your question.

Q - Didier Scemama

Didier ABN AMRO. Just to the, come back to semis again and I apologize to go into the question a bit specific, but you mentioned mobile and personal communication as key driver I think it at ’06 should be also driven the Wireless Center business. Specifically on that, could you maybe give us an indication as to, when you would start shipping your 3G cellular system solution and whether the so peripheral businesses like Bluetooth and WiFi and mobile on TV to bring on sort of triple digit revenues in ‘06?

A - Pierre-Jean Sivignon

Okay. Before we go too far into mobile, I would have thought you to get the feeling that mobile will drive our growth next year. Actually, now, we don’t forget home. Home will come as well with some products on the digital side. And that should help as well our growth in 2006. So I would have thought and certainly we plan to continue to grow on the automotive side where we are introducing new products. So, I wouldn’t want this question to let you believe that we are only that have the year around mobile in 2006. To your question about when do we introduce products in the 3G, I would have to give you a specific quarter, I would face probably, in the later part of 2006 to give a full-sized quarter because that’s what you want, I would have to come back to you to be even more specific on that.

Q - Didier Scemama

Pretty good, but what you’re meaning that Wireless is going to grow but is not going to be the only driver for ’06, but you don’t mean that Wireless, is going to grow less into the business in ‘06?

A - Pierre-Jean Sivignon

No, its not, no it is not the only driver, actually as I said, you should look at ultimately, about we action new product as well as, and certainly as well at home where digital with a soft revenue and in fact right. Even though I have to say that and that’s obviously now going to stronger.

Q - Didier Scemama

All right thanks.

Operator

The last question comes from Mr. Thomas Brenier. Please state your company followed by your question.

Q - Thomas Brenier

Yeah Thomas Brenier from Societe Generale, just forward on the TV business, could you tell us if the share of flat TV’s in the mid 15 is around 60% in value and do you expect a FIFA World Cup effect, if such when looking at, it’s super sale as is down more Q1 or Q2?

A - Pierre-Jean Sivignon

All right, just I can’t give you, I just want to comeback to the previous points which relates to shipping a third generation telecomm products, what I understand is that we are already shipping it from so, I think to be more specific, on particular products I think you would have to come back to you off line. But what I understand is that as we speak, we’re already shipping a third generation products for telecomm. On television and on those mix of flat screens into the overall connected display revenue, the mix to that is at 60%, it’s well about 60% now.

Q - Thomas Brenier

Okay and by the way…

A - Pierre-Jean Sivignon

And the figure I’m giving to you by the way is not a projected one. That 60% is the actual number looking back at 2005. So the change of mix as we can see has been quite significant.

Operator

Thank you, Mr. Sivignon that was the last question.

Pierre-Jean Sivignon , Chief Financial Officer

Okay, thank you very much everybody for your questions.

Operator

This concludes Royal Philips Electronics fourth quarter results 2005, on Monday the 23rd of January, 2006. Thank you for participating you may now disconnect.

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