Products

• Technology news: Electrolux

  
  16 December 2008
  

  Sixteen days before the year-end looks awfully late to decide you will not make your profits guidance. Indeed, since Electrolux's year essentially ends on December 20 – after which white goods sales tail off sharply – its warning on Monday really did fall in to the five-minutes-to-midnight category.

  Electrolux’s operating profit guidance for the year always looked optimistic even after it was cut in July to SKr3.3bn-SKr3.9bn – down 19-31 per cent from 2007. But in fairness, like many others, Electrolux has been hit by one of the sharpest slowdowns manufacturers have seen. Modest year-on-year declines in white goods sales in Europe and the US in October almost doubled in November.

  A decent October made Electrolux believe it could still hit its full-year forecast. After all, November is normally the best month of the quarter, as consumers buy high-margin cookers before Christmas. Not this year: sales dived in the final two weeks. With fourth quarter profits to date of only SKr800m, Electrolux’s warning that a small operating loss is possible this month implies a 60 per cent-plus decline from SKr2bn in the same quarter last year.

  The broader picture, as financial crisis transmutes into recession, is of a progressive pullback in consumer spending. First houses, then cars, now fridges. Just how badly that will affect white goods makers depends on how protracted the downturn becomes. The first couple of months of the year usually see weak sales. Once consumers start buying fridges in the spring, cost-cutting measures will be kicking in.

  Electrolux is cutting 3,000 jobs, or 5 per cent of the global workforce – which should accelerate progress towards its goal of having 50 per cent of production in low-cost countries by 2010. Meanwhile, its shares still trade on just over 10 times consensus earnings forecasts for this year and next (forecast to be broadly flat). In the most uncertain consumer climate for years, that looks overly aggressive.

   

  (ft.com)

• Technology news: Sony slashes

  
  16 December 2008
  

  From the people who brought you the PlayStation3 console comes RestructuringPlan2. But while gaming geeks were gagging for the former, investors should manage to contain their excitement for the latter. Sony Corp, the Japanese consumer electronics group that is forecasting a 59 per cent slide in net profits this year, is to cut 8,000 jobs, or 5 per cent of its electronics workforce, and trim investment in the sector next fiscal year. One in 10 of its 57 manufacturing sites will be shuttered.

  There are two problems. First, Sony’s profit forecast, revised in late October, looks more Pollyannaish now than it did then. Those numbers were based on a second-half exchange rate of Y100/$1, a level of weakness not seen since. Second, the response focusing purely on cost-cutting in a single division is tame. Whittling back workers and factories will save over $1bn a year, Sony reckons, or half as much operating profit as it expects to make this year. There is no guidance on the cost of restructuring, likely to be considerable given the inevitable redundancy payments for 8,000 targeted electronics workers. It could easily swallow up one year of savings if the first restructuring plan implemented under Sir Howard Stringer is any guide. That plan, which resulted in 10,000 job losses (on presumably richer terms than would be available today) and 11 factory closures, cost more than $2bn.

  Sony is not even trying to tickle consumer demand by, for example, cutting the price of games consoles. On the contrary, it plans to raise the price of gadgets in Europe to help recoup currency losses. That will surely make the price tags on Samsung screens – flattered by the weak South Korean won – more compelling viewing for Europeans, and further dent Sony’s top line. With white-collar workers losing their jobs in droves, demand for flat-screen TVs and other gadgets is already shrivelling. Add in appreciation, and electronics sales could easily drop 10 per cent. Roll on RestructuringPlan3.

   

  (ft.com)

• Technology news: Philips

  
  16 December 2008
  

  Bad news is coming so fast and furious these days that it is easy to become numb to it all. But the picture painted on Thursday by Philips, the Dutch electronics group, as it cut its trading outlook, was grim enough to make the most grizzled investors blanch. The maker of medical imaging equipment, lightbulbs and consumer electronics said sales, sentiment and credit conditions had “slumped in a very dangerous way”.

  he target of doubling earnings by 2010 is no longer on the cards and Philips said it faced writedowns on its stakes in semiconductor and television display joint ventures. The credit squeeze has hit hospitals, cutting sales of big-ticket imaging systems and other medical devices. Beleaguered carmakers have cut back on purchases of bulbs for headlights. Together, healthcare and lighting account for just less than half of the company’s revenues but about 80 per cent of profits. A collapse in consumer demand, meanwhile, is putting pressure on Philips’ legacy consumer electronics business.

  In spite of all this, investors can take comfort in some long-term trends. Over seven years, Philips has transformed itself from a company bogged down in low-margin businesses such as TVs and semiconductors into one focused on higher-margin businesses such as healthcare. Philips’ shares have fallen about 50 per cent since June and now trade on a multiple of 9.2 times estimated 2008 earnings, roughly in line with rivals . But Philips has relatively low debt compared with industry peers. A strong balance sheet should help it avoid the worst of the fallout from the credit crunch. Deft manoeuvring will be required to protect margins but investors willing to stomach the next few quarters of turbulence should emerge from the storm to find clearer skies ahead.

   

  (ft.com)