Q4 CE Hit Sinks Vendor Profits
Faced with stiff competition and falling consumer electronics prices, Motorola and LG Electronics suffered steep declines in fourth-quarter net income. Meanwhile, Philips Electronics’ net profit more than doubled, helped by the sale of a semiconductor unit and lower tax rates, although revenue fell due to a six percent decrease in CE sales.
Motorola’s strategy of cutting the price of its popular Razr phones to gain market share was one factor that led to a drop in profits in its handset division of 4.4 percent during the fourth quarter, down from 11.9 percent in the previous quarter. Motorola announced it would cut 3,500 jobs, or 5 percent of its work force, to help increase margins and decrease costs. Overall, fourth-qaurter net income fell 48 percent. Shipments of handsets hit 65.7 million during the fourth quarter, a 47 percent increase from last year. The company expects to reach double-digit operating margins by the second half of this year.
Although Philips’ consumer division took a sales hit in the fourth quarter, the company’s net profit rose to 680 million euros or $881.5 million. Philips attributed the revenue drop, to 8.13 billion euros from 8.19 billion euros, on margin pressures caused by a glut in flat-screen TV supplies. Sales increased in Philips’ domestic appliance and personal care, lighting and medical systems divisions.