Philips share short-circuits as CEO says weak dollar to affect sales

AMSTERDAM (AFP) May 21, 2003
The price of Dutch giant Royal Philips Electronics shares fell Wednesday after chief executive Gerard Kleisterlee warned that dollar weakness is impacting revenues, notably in its consumer electronics and semiconductor operations, analysts said.

"The continuing difficult economic environment and declining US dollar are putting pressure on revenues, in particular in the consumer electronics and semiconductor businesses, whilst the impact of the SARS virus in Asia remains too early to gauge," the company said in a statement quoting a speech by Kleisterlee at an industry conference in Spain.

Philips shares clawed back lost ground to end 2.7 percent lower at 14.75 euros. The AEX index dropped 2.3 percent to 268.58 points.

However the analysts, in reiterating their current ratings on the stock, also pointed out that although dollar weakness will have an impact on Philips' sales this will be capped by a corresponding fall in costs.

JP Morgan analysts Uche Orji and Jahor Gupta said in a note: "Although Philips' main operating currency is the euro, about 30 percent of the company's revenues are denominated in the US dollar, leading to a negative impact that was apparent in the company's first-quarter results.

"However, roughly the same proportion of operating costs is also denominated in the US dollar, which gives Philips a natural hedge on the operating cost line," the analysts said.

They reiterated their "overweight" rating on the stock and their fair value of 20 euros, "which assumes that the semiconductor division is valued at a 30-percent discount to the peer group, a discount that we feel is appropriate".

Stroeve analyst Peter Olofsen agreed that Philips will be able to offset future lower income through their in-built hedging.

Olofsen noted that Philips's medical operations and other businesses are heavily exposed to the United States, which will have an impact on sales as well as the company's cost base but added that impact on the bottom line could be limited.

"For example, in Consumer Electronics, a shift in currency rates -- US dollar versus euro but also US dollar versus yen -- could impact the company's position as this sector as they face their largest competitors in Japan, but at this moment, I don't think the impact will be very large on the bottom line," Olofsen said

Stroeve has a "hold" rating on Philips, "and I don't see much reason to change that," Olofsen said.

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