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Philips to detach chip operations

Royal Philips Electronics NV, Europe's largest consumer electronics maker, said yesterday it plans to separate its semiconductor division into a separate legal company, as a prelude to a spinoff or sale.

The new company would be one of the world's 10 largest semiconductor businesses, with sales last year of US$6.6 billion and core earnings of around US$540 million.

For nearly a decade, analysts have been debating whether the company's semiconductor business would provide better value as a standalone company, or as an in-house supplier for Philips, which uses the chips in a wide array of products ranging from household appliances to DVD players to industrial medical equipment.

The company declined to say yesterday whether the business is more likely to be acquired or to strike an alliance with another major chipmaker, but it was clear the move is a prelude to further structure change.

Semiconductors chief executive Frans van Houten predicted that the coming five years will see a wave of consolidation in the semiconductor industry.

"Rather than remain behind that trend ... we want to get to the forefront of it," he said in a conference call with reporters.

"We see several opportunities in the market at this moment, and we prefer not to say more about the kind of action we may be taking," he said.

Van Houten said completing all the paperwork that is required to sever the unit will take until the second half of next year, and that for the time being Philips would remain 100 percent owner of the arm.

But he said the company would also keep its eyes open for any merger and acquisition opportunities that present themselves in the meantime.

"We felt this was the right time to give ourselves more flexibility with regard to strategic options," he said.

He denied that the unit felt pressure to merge in order to gain market scale and survive.

"Philips Semiconductors does not lack scale, Philips Semiconductors is a top-10 semiconductor unit globally," he said.

"But we believe that in certain areas an increase in scale would lead to even more opportunity and stronger market positions," he added.

Shares were expected to rise on the news in early Amsterdam trading, brokers said.

In a separate move, Philips on Wednesday sold 18 million shares in its liquid-crystal display joint venture LG Philips LCD Co for roughly US$730 million, which reduces its overall holding in the firm by 5 percent.

The divestment will provide Philips with a tax-free gain of about US$250 million for the fourth quarter, the Amsterdam-based company said in a press statement.

Shares in LG.Philips fell by nearly 5 percent on the New York stock exchange. Philips will hold 117.6 million shares in the Dutch-South Korean business after the transaction, amounting to a reduction from 37.9 to 32.9 percent, it said.
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