Philips raises its third quarter outlook

Royal Philips Electronics NV, Europe's largest consumer-electronics maker, raised its third- quarter sales outlook for its semiconductor business and said it still expects the unit to be profitable in the fourth quarter.

The company, Europe's third-largest chipmaker, expects third-quarter chip sales in dollar terms to exceed an earlier target for 3 percent growth from the previous quarter "by a few percentage points," Philips spokesman Jayson Otke said. He declined to elaborate.

Philips, based in Amsterdam, is cutting expenses at its semiconductor business, whose customers include mobile-phone maker Nokia Oyj and carmaker Bayerische Motoren Werke AG, by shedding jobs and closing two US factories.

"The new outlook is positive, but I would've been surprised if they hadn't boosted the outlook," said Bert Siebrand, an analyst at Bank Oyens & Van Eeghen in Amsterdam, who has put his "neutral" rating on Philips under review. "It's further proof a semiconductor recovery seems for real."

The announcement came before the start of trading on Euronext Amsterdam. Shares of Philips have gained 27 percent this year and the benchmark Dutch Amsterdam AEX Index has risen 2.4 percent.

The company, which trails STMicroelectronics NV and Infineon Technologies AG in Europe in making chips, said in March it will cut 1,600 jobs at its chip business to help return the unit to profit.

"The order book for the fourth quarter is progressing well, with the business on track to being profitable in the fourth quarter," Scott McGregor, chief executive officer at Philips Semiconductors, said in an e-mailed statement. "We expect further sequential growth in the fourth quarter."

The company will take a 150 million-euro restructuring charge in the third quarter related to closing factories in Albuquerque, New Mexico and San Antonio and measures to "focus research & development spending." In July, Philips said the charge would be about 120 million euros for just closing the factories. Shuttering the plants will help save 200 million euros a year by cutting research and development spending, with another 50 million euros in savings on computer systems, Philips has said.

The Philips chip unit, which employed 33,943 workers at the end of the second quarter, has had about 1.1 billion euros of operating losses in the past two years. The company as a whole reported two straight years of record losses.

Philips has moved production to countries with lower labor costs and slashed more than a fifth of the company's workforce since Gerard Kleisterlee became CEO in 2001.

Philips in July reported its first net income in five quarters as cost cuts overcame an 18 percent drop in sales, and said it still aims to post an operating profit this year.