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Philips issues profit warning, shares plunge

Philips Electronics warned of sharply lower profit at its lighting and toasters-to-shavers consumer electronics divisions because of weak demand in Europe, wiping 10 per cent off its share price.

The Dutch giant - which ranks as the world's biggest lighting maker, Europe's biggest consumer electronics producer, and a top three maker of hospital equipment - said it would cut costs as part of its wider restructuring.

The profit warning caps a string of disappointing announcements from Philips, which is struggling to compete with lower-cost Asian rivals in its traditional consumer electronics business at a time when demand has slowed in the important European and U.S. markets for many of its products because of tepid economic growth.

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"The fact that Philips reports such a massive shortfall in profits just before the end of the quarter is a blow to the company's credibility and we expect the market to take skeptical view on the upcoming update of the financial goals next October," said SNS Securities analyst Victor Bareno in a research note.

"We have to cut our estimates and we put our price target and buy recommendation under review with negative implication," he added.

Restructuring expert Frans van Houten, who took over as chief executive officer in April, has promised a review of all the businesses and a dramatic overhaul to lift profit growth.

Mr. Van Houten moved quickly to hive off the group's loss-making TV business to a 30/70 joint venture with Hong-Kong based monitor maker TPV, with the option to sell out.

Several senior Philips executives have quit in recent months, since Mr. Van Houten joined as CEO-in-waiting.

The latest warning from Philips came on the same day as Kesa, Europe's No. 3 electricals retailer, said it was considering the sale of its loss-making Comet chain in Britain after trade across the group worsened in its new financial year.

Philips said its lighting division, whose products include energy-saving lamps used in the Paris Eiffel Tower, would report "low single-digit comparable sales growth" in the second quarter because of weak consumer demand and the stagnant construction markets in Europe.

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It said second-quarter earnings before interest, tax and amortization (EBITA) for the lighting division would be about €85-million - down 60 per cent from the year-ago figure of €210-million.

The consumer electronics division will show a "low single-digit" sales decline in the April-to-June period, and EBITA of about €50-million - a drop of 71 per cent from the year-ago figure of €173-million.

The Dutch group competes with General Electric and Siemens in the hospital and lighting markets and with Samsung and LG Electronics among others in consumer electronics.

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