Philips’ Global TV Business to Post $169 Million Q1 Operating Loss

Philips’ global TV business will post a Q1 operating loss as high as $169 million, nearly double that of a year ago, amid high inventory and sharp pricing pressure, the company said Monday. As a result, Philips will likely fall short of its goal of having the TV division break even in 2011, marking its fifth consecutive annual loss, the company said.

The results will increase pressure on Philips management, including new CEO Frans Van Houten, to find a cure of the ailing TV business. While Philips has declined to comment on options being considered for the TV business, they range from selling it to continuing with a licensing strategy that has landed agreements with Funai (North America), Videotron (India) and TPV (China), analysts have said. Van Houten on Friday officially replaces outgoing CEO Gerard Kleisterlee, who has led the company for a decade.

"The loss is of a serious magnitude,” SNS Securities analyst Victor Bareno said. “This shows that it is absolutely necessary for Philips to resolve this issue.” Bareno forecast a $98.6 million operating loss for Philips’ TV business. Philips’ TV sales were $4.45 billion in 2010, representing about a third of the company’s total consumer lifestyles revenue.

Consumer Lifestyles’ Q4 earnings before interest, taxes, depreciation and amortization margin fell to 5.6 percent of sales from 9.2 percent a year earlier due both to TV pricing pressure and a build of inventory that was expected to “provide some headwind” into Q1, Chief Financial Officer Pierre-Jean Sivignon told analysts earlier this year. Philips expected to clear out excess inventory by the end of Q1. Unlike the TV business, Philips’ audio and accessories group remained profitable, he said.

Philips as recently as January was confident that the TV division would break even this year, reversing similar pledges made in 2009 and 2010 that it didn’t deliver on. “I think what you will see in television is a variety of business models, basically changing the business for the better, Sivignon said in January.

The business models thus far have focused on licensing with the additions last year of Videotron and TPV. Philips had expected to close the agreement with TPV for selling branded TVs in China in early Q4, but didn’t sign the final pact until late in the quarter, Philips officials said. The issues that slowed the deal have been resolved, a Philips spokesman said in declining further comment. TPV Finance Director Shane Tyau confirmed that “whatever problems there were” have been resolved, but declined to disclose additional details. TPV launched sales of a Philips 46-inch LCD in China in Q1 and expects to expand the line in Q2, Tyau said.

Meanwhile, Mitsui & Co. bought an additional 5.14 percent of TPV for $1 billion, to increase its ownership in the company to 20.18 percent and total ownership to $4.41 billion. Mitsui, which has a seat on TPV’s board, initially bought 15.05 percent of TPV in 2010. Mitsui’s new investment will “further strengthen business initiatives” with TPV to expand its display business, Mitsui said. The initiatives are tied to sales and marketing, logistics and operational issues, said Tyau, who declined further comment. Philips once owned close to 25 percent of TPV as a result of the sale of its PC monitor manufacturing business to the Chinese supplier in 2005, but gradually sold off the investment. It signed a licensing agreement with TPV for PC monitors in 2008.