Sat, Mar 31, 2001 EST
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Philips Running into Problems
Associated Press
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AMSTERDAM, Netherlands — Royal Philips Electronics NV, Europe's biggest electronics company, said its key semiconductor business will earn less than expected in the first quarter and its full year earnings will fall short of earlier growth forecasts.

The company cited the slowdown of the U.S. economy and gloomy forecasts by European companies that use its semiconductor chips for Monday's warnings.

By midday, its shares were down 3 percent after trading even lower earlier in the session.

Philips said it expected income from semiconductors to fall 10 percent in the first quarter from a year ago. But sales for the division will rise by 7 percent, it said.

It said it expected its components and consumer electronics division to report a first-quarter operating loss, but made no specific forecast. Other divisions — lighting, household appliances, personal care — will hold steady or make gains over the same period last year, said a company statement.

For the year, Philips spokesman Ben Geerts said the company still expects to outperform the semiconductor market by 5 percent in 2001, but said it will fall short of its target of a 15 percent growth in earnings per share.

Analysts said the profit warning was inevitable and they had expected it sooner. The company's quarterly report is due April 17.

"What's surprising is not the profit warning itself, but that Philips felt it didn't need to say anything about this until now," said Rabobank analyst Frits de Vries.

De Vries said Philips' forecast would looked even more grim if compared with the fourth quarter of 2000.

"Philips is really saying semiconductor profits will fall from 408 million euros ($366.5 million) in the fourth quarter of 2000 to around 220 million ($197.5 million) in the first quarter of 2001," he said. "That's a nasty drop."

Sweden's LM Ericsson, which uses Philips chips in its mobile phones, Finland's Nokia, which has Philips display screens, and chipmaker STM Microelectronics all recently issued profit warnings.

The announcement from Philips comes a month before chief executive Cor Boonstra hands over the company to Gerard Kleisterlee. During Boonstra's five-year term, Philips has been transformed from a conglomerate into a sleeker business. Until this year, net operating profit had increased by more than 80 percent, while the work force shrank by 10 percent to 227,000.

The company said it has been quick to respond to the new market conditions by adjusting its cost structure to sales levels where possible, and by cutting back capital spending.

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