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Philips considers chip business sell-off
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Royal Philips Electronics has said it plans to separate out its semiconductor operation to give the company the "flexibility to pursue strategic options for further strengthening the longer-term performance of these activities".

The move may lead to a sale to a competitor or flotation of the chipmaking business, which has suffered from lacklustre performance compared with other parts of Philips. However, Gerard Kleisterlee, president and CEO of Royal Philips Electronics, warned journalists and analysts in a conference call that the "range of strategic options include mergers and acquisition activity.", but stressed that the parent company is transforming itself into a "health and lifestyle" company and trying to reduce its dependence on volatile businesses. The company reduced its investment in LCD maker LG.Philips on Wednesday to less than a third of the company by selling off 18 million shares and Kleisterlee added shares in other volatile, jointly owned businesses would gradually be sold off.

CEO of Philips Semiconductors Frans van Houten added: "Consolidation is happening and we would like to be the first mover in that effect." He said the aim is to "build scale in the coming years...through a variety of merger and acquisition options that we can consider."

Kleisterlee said the aim of the separation was to be flexible to the option of a large-scale merger and the consequences that would have for the ownership structure of the semiconductors business. He declined to comment on whether negotiations with other large chipmakers on a merger had already started.

In early 2005 Philips introduced what it called a business renewal programme to "improve the semiconductor division's competitiveness and bring profitability through the cycle to between 5 and 15 per cent, as well as to increase market share in the semiconductors division's four core businesses". Those businesses, identified last year by van Houten after his appointment, are: devices for mobile and personal systems; home; automotive and identification; and multi-market semiconductors.

"While we are pleased with the progress of the business renewal programme, we see opportunities to further strengthen the activities and maximise shareholder value, with the step we announced today, in an industry where scale matters," said Kleisterlee.

Van Houten added: "This move will lead to increased flexibility for our semiconductor business to invest, grow and build scale in the competitive semiconductor market, while continuing to leverage the strengths of Philips overall. This is good news for our customers and employees,".

The creation of the new legal structure could take until the second half of 2006 to complete, Philips said.

Dateline: 02/15/05