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• 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)