Philips Electronics

stepped up its cost-cutting drive yesterday and said more jobs would go as part of a drastic overhaul of its business, which began to turn around in the first half after losing 1.3 billion euros in 2011.

Ahead of an investor event in London, Chief Executive Frans van Houten said another 2,200 jobs would be cut, but a spokesman for the Dutch company added that most would be outside the Netherlands, where a national election is expected to be held today with job losses among the main campaign issues.

Philips, maker of consumer electronics, medical equipment, and lighting systems, announced the first round of 4,500 job cuts in October, 1,200 of them on its home turf. At the end of the second quarter, Philips had 121,801 employees worldwide, 14,000 of them in the Netherlands.

Van Houten raised the Dutch company's cost-cutting target to 1.1 billion euros from 800 million euros as it takes an axe to overheads, which were around 5 billion euros last year on revenue of 22.6 billion, by removing duplication and reducing complexity in areas such as IT.

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Philips steps up job cuts

An analyst who asked not to be named said he understood Philips had around 70 different IT platforms and Van Houten wanted to cut that to six.

Philips has said it wants to reinvest some of the savings into innovation, research and sales as it aims to get new products into local markets faster. “The identified additional overhead cost reduction measures will help us mitigate the effects of macro-economic headwinds and changes in pension-cost accounting, while making us a more agile innovation company serving our customers effectively across the world,” said van Houten.

Europe's largest consumer electronics producer, the world's biggest lighting maker and a top-three maker of hospital equipment reported bumper second-quarter earnings in July, giving investors hope that the overhaul was starting to pay off.

In his first year at the top, Van Houten started to reshape the company where he had spent most of his working life, including its corporate culture – largely considered consensus-driven and cautious – which he says isn't entrepreneurial enough. In his first year as CEO, he issued two profit warnings, reset financial targets, cut thousands of jobs, replaced his entire top executive team and, eventually, hived off the loss-making TV business. After two quarters of better-than-expected results, Van Houten told Reuters in July that the firm was now in “sustainable recovery mode”, though he wouldn't rule out taking further measures to cut costs.  

“It does not only further increase confidence in the group's margin targets for 2013 but also supports projections that Philips will be able to achieve additional margin improvement in 2014,” said Victor Bareno, SNS Securities analyst. “At the same time, we believe the restructuring story is already for a large part in the price at the current levels.”

Like many other electronic firms looking to cut overhead costs, Japan's Sharp also said yesterday it would trim fixed costs by cutting salaries.

As expected, Philips didn't give a detailed outlook for the remainder of the year, but confirmed it was set to meet its previous guidance for sales growth of between 4 and 6 percent in 2013, a margin on earnings before interest, tax and amortisation of 10 to 12 percent and a return on invested capital of 12 to 14 percent.


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