Philips hangs up mobile

June 26, 2001 Posted: 1217 GMT

LONDON (CNN) -- Philips Electronics said on Tuesday it will axe 1,235 jobs in France as it closes its loss-making mobile phone business.

Europe's biggest consumer electronics company will no longer make wireless handsets and plans to take a charge of 300 million ($258 million) in the second or third quarter to refocus its activities.

Philips, the Dutch maker of everything from flat-screen TVs and computer chips to toasters and light bulbs, is following the example of Sweden's Ericsson, which aims to operate its wireless handset unit at arm's length.

France's Alcatel (PCGE), Europe's fourth-biggest phone equipment maker, closed factories as sales of mobile phones tapered off in key markets and new technology failed to inspire consumers.

The company plans to form a partnership with China Electronics Corporation, with which it would continue to sell Philips branded products. About 900 people are employed in Shenzhen, China.

The Amsterdam-based company said of the 2,536 employees at its Le Mans site in northern France, 280 engineers, executives and technicians will be transferred to CEC. Philips employs 2,800 people in France.

"By reducing the cost base drastically we will be able to realize market presence with greatly reduced exposure," said Chief Executive Gerard Kleisterlee, who took up the post in April. 

The announcement concludes a dire month for the Dutch company. Last week, Philips said it expects its chip business to post a second-quarter operating loss of about $151 million as sales slow.

It also expects a make a "significant loss" for the whole company in the second quarter. Chief Financial Officer Jan Hommen declined last week to offer further guidance. 

In April, the company said it would take a charge of 350 million to reorganise its businesses and pay for the loss of 7,000 jobs. Philips will also take a charge of 90 million to restructure its semiconductor unit. Total charges for the current year now stack up to 740 million.

Shares in Philips dropped 2.7 percent to 29.58 in midday Amsterdam trade on disappointment the company could not find a buyer for the mobile phone unit.

"People are selling Philips simply because there's a little disappointment that they could not ultimately make the unit work," Eureffect fund manager Krijn Moens told Reuters.

The mobile phone unit, Philips Consumer Communications, has only once reported a profit since its inception in 1997. The business has cost Philips 850 million to keep afloat over that period.

In the first three months of this year, PCC made an operating loss of 118 million.

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