Lighting business grows yet Philips plans to cut 4,500 jobs

Facing a sharp decline in third-quarter profits, Philips announced a cost-cutting plan yesterday, including the elimination of 4,500 jobs, of which 1,400 are local Dutch employees, as part of an 800-million-euro cost reduction plan. Data released by Philips yesterday showed that the company's net profit in the third quarter of this year fell 85% year-on-year, dropping from 524 million euros in the same period last year to 76 million euros. In addition, since the beginning of this year, Philips' share price has cumulatively fallen by more than 35%, and the company's market capitalization has dropped to 14.9 billion euros.

　　Philips' third-quarter EBIT (earnings before interest, tax, and amortization) fell nearly half year-on-year, from 648 million euros in the same period last year to 386 million euros. The reasons include higher restructuring costs, acquisition-related expenses, and a decline in profits from the entertainment and consumer lighting divisions.

　　Despite the lighting business division growing 7%, of which 32% was driven by growth in LED sales, profits were offset by higher investments and substantial R&D expenses; the shortage of rare-earth materials led to higher raw material costs that also reduced profit margins.

　　President and CEO Frans van Houten stated: "Our plan to cut €800 million in expenses has been announced in detail, which will optimize all expenditures across the group. Although the cost-saving plan will result in the loss of approximately 4,500 jobs, this will improve our business model and make the company more agile, lean, and more competitive... While there are still operational and performance issues to address in the lighting division in order to maintain our global leadership, we are pleased with the high growth in energy-efficient LED lighting solutions."

　　Philips stated that most of the restructuring will take place between 2012 and 2013, and reiterated its 2013 financial targets of 4% to 6% revenue growth and an EBITDA margin of 10% to 12%.