Philips blames Russia, China slowdowns for plunge into loss
Philips says that a state anti-corruption drive in China is slowing down sales of its equipment.
THE HAGUE (AFP) - Dutch electronics giant Philips plunged into loss in the third quarter, it revealed on Monday, blaming a patent lawsuit and ever-slowing markets in China and Russia.
The outcome was a sharp downturn to a net loss of 103-million-euro ($131 million).
Philips, which has diversified into high-margin healthcare technology, said it thought that a state anti-corruption drive in China was slowing down sales of its equipment there.
In Russia, consumers were holding off from purchasing household appliances, it said, against a background of slowing growth in the local economy which is also suffering from western sanctions over the Ukraine crisis.
The Amsterdam-based Philips, one of the world s leading makers of lighting, health care and consumer electronic goods, turned in a comparable net profit of 281 million euros for the third quarter last year.
"We are not satisfied with our overall performance for the third quarter," said chief executive Frans van Houten.
Philips share price by mid-afternoon fell by 3.8 percent to 21,21 euros on the Amsterdam stock exchange s AEX index.
"We are facing sustained softness in a number of markets such as China and Russia. We were also confronted with an adverse jury verdict with a surprisingly high proposed award to Massimo," Van Houten said during a conference call with journalists.
Earlier this month, a US jury ordered Philips to pay $466.8 million to American company Masimo for violating two medical device patents.
The eight members of the Delaware jury gave their verdict after a two-week trial, which came after the California-based Masimo had filed a complaint in 2009.
"We will appeal the verdict," Van Houten said.
- China, Russia sales flat -
Sales in China and Russia in particular remained flat, van Houten said, as both economies showed signs of slowing down.
"The slowdown is very much related to the market situation in Russia and China and not related to our own performance," Van Houten pointed out.
In China, the world s second-biggest economy, sales dipped by 34 million euros over the last 20 months, including in what Van Houten referred to as a "volatile healthcare sector."
Healthcare sales were mainly affected because Philips believed "orders are being held back due to anti-corruption processes" by the Chinese government.
"This leads to a much higher administrative burden and lengthy processes," he said.
China s economic growth in the third quarter fell to the lowest since the depths of the global financial crisis more than five years ago, projected an AFP survey published on Sunday.
Ratings agency Moody s on Friday downgraded Russia s credit rating to Baa2 from Baa1, citing poor growth prospects, the Ukraine crisis and sanctions as well as capital flight.
Consumer product sales were "signficantly down" in Russia, Van Houten said.
Citing an example, Van Houten said that Philips "had this massive sale" of its handy multi-cooker kitchen appliances last year.
"In 2013 almost one out of 10 Russian families bought this," he said.
"Now consumers are holding their hands on their wallets," he said.
Looking forward as "headwinds start to abate", Philips pre-tax earnings for the second quarter is expected to be just below 2013 year-on-year "and we remained committed to our 2016 financial targets," Van Houten added.
He said 2014 was a "pause in our trajectory towards 2016 targets."
Analyst Jos Versteeg from Theodoor Gilissen private bank told AFP that Philips third-quarter result was "not really a disappointment."
He said: "We already know that the second half of the year won t be very good ... but we will see a recovery next year. That s what everybody expects."
The income dip comes as Philips last month announced it would split in two in a historic but dramatic move to streamline the 120-year-old company.
Philips, a household name around the world for home appliances, has re-orientated its range of activities in recent years to focus more on advanced lighting technology and on medical technology where margins are strong and less vulnerable to competition from emerging markets.
The company employs about 112,000 people worldwide.
