Philips’ profits boost gets good reception

Electronics giant Philips this week signalled the return of better times thanks to the world’s growing love affair with the flat screen TV.

The Dutch group posted a £361m profit for the first quarter of 2004, a dramatic turnaround on the £45m loss it recorded at the same stage last year.

Philips, one of Europe’s hi-tech powerhouses, has endured a tough few years as the electronics industry struggled to cope with a sharp downturn in demand in key areas such as semiconductors.

A significant chunk of the Q1 profits came from LG Philips LCD, the group’s flat panel display joint venture with Korea’s LG Electronics. LG Philips delivered £141m to the Philips group’s coffers thanks to burgeoning demand for products based on its thin-film transistor (TFT) LCD technology.

This is increasingly common in flat panel TV screens and an array of other devices such as PC monitors and avionics instruments.

The technology -liquid crystal injected between two glass plates and controlled by ultra-thin arrays of transistors – offers many advantages over the cathode ray tube.

As well as being slimmer and lighter, it uses less energy and can be used to create better image resolution on large screens.

Philips and its Korean partner will view the handsome returns LG Philips is beginning to generate as justification for their huge investment in the technology.

The joint venture plans to spend £12bn over the next 10 years to meet the expected growth demand for LCD products and keep ahead of rivals such as Samsung.

The investment includes building what LG Philips claimed will be the world’s biggest TFT LCD plant at Paju, near Seoul, which it hopes will be churning out billions of pounds worth of large LCD panels from 2006 onwards.

Though most market observers believe the future is bright for TFT LCDs, some caution that over-supply could eventually send prices falling.

Away from its LCD interests, Philips enjoyed less spectacular, though solid growth. Overall sales grew by 2 per cent to £4.3bn.

Semiconductors – a hugely difficult area for the group and many others over recent years – showed signs of revival with improved sales and less downward pressure on prices.

Philips said it was expecting a strong Q2 from its consumer electronics division and described the performance of its medicalsystems business as ‘solid.’