Lawsuit and slowing economies hit Philips
Print Edition
DUTCH electronics giant Philips plunged into a loss in the third quarter, it revealed yesterday, 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 euros (US$131 million).
Philips, which has diversified into high-margin health care 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.
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 of last year.
“We are not satisfied with our overall performance for the third quarter,” said Chief Executive Frans van Houten.
“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.
Earlier this month, a US jury ordered Philips to pay US$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 California-based Masimo had filed a complaint in 2009.
“We will appeal the verdict,” van Houten said.
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 fell by 34 million euros over the last 20 months, including in what van Houten referred to as a “volatile health care 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 over five years ago, projected an AFP survey published on Sunday.
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 “significantly down” in Russia, van Houten said.
Citing an example, he said 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.”
Looking forward as “headwinds start to abate,” Philips’ pretax earnings for the second quarter is seen to be just below 2013 year on year “and we remained committed to our 2016 financial targets,” he added.
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