Royal Philips Electronics NV may say this week that it will stop making mobile phones, a decision that could mean more firings and a second-quarter charge of as much as 1 billion euros (US$854 million), analysts said.
Amsterdam-based Philips, Europe's No. 1 consumer-electronics maker, has said it will make a decision on its unprofitable mobile-phone unit by the end of June. Exiting that business will mean cutting jobs and taking additional charges, analysts said.
"I expect them to take a charge for the whole reorganization of about 1 billion euros in the second quarter," said Victor van Will, an analyst at NIB Capital who rates Philips's shares "market perform."
Chief Executive Gerard Kleisterlee, who took the helm May 1, is trying to return Philips to profitability by eliminating jobs and reducing spending. The company has already announced 7,000 jobs cuts and estimated it would take a 350 million-euro charge in the second quarter. In April, it predicted a second-quarter loss as demand slows for products such as mobile phones and computer screens.
Philips will on Wednesday hold a meeting for analysts for its consumer-electronics unit, which includes the business that makes mobile phones. Kleisterlee may attend the meeting, spokesman Simon Poulter said.
He declined to say if the meeting will coincide with an announcement on the job cuts and the mobile-phone unit.
"It doesn't matter which option they'll chose for their mobile phone unit," said analyst Peter Olofsen at Effectenbank Stroeve NV. "All options will have an impact on employment."
Olofsen lowered his price target for Philips' shares to 30 euros from 34 euros on June 19.
The company's shares closed at 30.20 Friday, giving Philips a market value of 40 billion euros. They've lost 23 percent of their value this year.
The mobile-phone unit had a loss of 118 million euros on sales of 372 million euros in the first quarter, compared with a profit of 24 million euros in the year-earlier period. Philips is expected to keep supplying handset makers with chips and displays, analysts have said.
The unit, which had a worldwide market share of 2.9 percent last year, isn't alone in its struggle to make money with mobile phones. Ericsson AB said in April it would merge its unprofitable cellular-phone unit with that of Sony Corp, the No. 2 maker of consumer electronics.
The company put Axel Rueckert, a management consultant, in charge of the unit last month, replacing Thom Swartsenburg.
Rueckert has "extensive experience in leading businesses in transition, especially in France," Philips said.
Philips' mobile-phone unit employs about 6,000 people worldwide, of which about 2,600 work in France. The unit makes cell phones in Le Mans, France and the Chinese city of Shenzhen.
Philips has already cut about 1,300 jobs in the past six months.
If the unit is closed, Philips will likely have to take a charge of 500 million euros, said Marco Schram, an analyst at Delta Lloyd Securities. Navdeep Sheera, an analyst at Schroder Salomon Smith Barney, said he expects a 300 million euro charge for closing the unit.
Philips in April said it expected to report a second-quarter loss before charges for the whole company, its first quarterly loss since 1998. The company will report second-quarter earnings July 17.
Separately, Philips said last month it also has scaled down its "ambitions" for the unprofitable Digital Networks unit, which makes set-top boxes, which lets users receive more channels, video on demand and e-mail services via the television.
"An announcement on a reorganization at this unit wouldn't surprise me," said analyst Steven Vrolijk at ING Barings, who rates Philips "hold." The company said last week it will take a second-quarter, pretax charge of about 90 million euros to transfer a semiconductor production line in the US.
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