Philips is hiving off its once leading television business, the first step by new chief executive Frans van Houten to boost flagging profit at Europe's biggest consumer electronics maker.
Philips is moving its loss-making TV business to a 30/70 joint venture with Hong-Kong based monitor maker TPV and has the option to sell out.
The Dutch group has struggled to compete with lower-cost Asian rivals Samsung and LG Electronics.
Mr Van Houten, a restructuring expert who took over as chief executive this month, said today he is assessing the profitability of Philips' 400 or so business areas and "taking the blanket off" its laggards, a hint that further divestments could be on the cards.
"We are not yet firing on all cylinders...There's much unlocked potential in Philips," Mr Van Houten said.
Philips' shares opened lower on the news, but then recovered to trade up 0.9 per cent earlier in a weaker market.
TPV's shares were halted at the request of the company earlier today. Philips did not give a value for the deal, saying it would receive a deferred payment from TVP. All 3,600 employees at the TV business will transfer to the Hong Kong company.
TPV, which controls about 33 percent of the global computer monitor market, posted a near 20 per cent rise in 2010 profit.
"It's a major positive," ING analyst Sjoerd Ummels, said of the deal, adding "It's clear (Van Houten) will address laggard businesses." These could include the audiovisual and multimedia business, which Philips said would be merged into its lifestyle entertainment unit in Hong Kong.
Mr Van Houten said that two units acquired under his predecessor - home healthcare firm Respironics and lighting fixtures group Genlyte - are not yet showing cost synergies.
Philips is the world's biggest lighting maker and a top three hospital equipment maker. The company showed its first television to the Dutch public in 1928 - a bulky, box-like contraption that was a far cry from its current sleek, flatscreen models.
The TV unit, which makes up less than 10 percent of group sales, has gone from being a global leader to a thorn in the firm's side, having notched up losses of almost a billion euros since the beginning of 2007.
Mr Van Houten said the new joint venture "will enable a return to profitability for the television business, and an increased portfolio focus for Philips in health and well-being." Philips said TPV will purchase 70 per cent of the shares in the joint venture for a deferred purchase price, equating to four times the joint venture's EBIT over the years 2012 until the year Philips exercises its right to receive the purchase price.
Philips also has an option to sell the remaining 30 per cent stake to TPV for the same terms after six years.
The Dutch company currently licenses its TVs to TPV in China as well as Funai in the United States and Videocom in India.
Philips, which competes with General Electric and Siemens in the hospital and lighting markets, reported first-quarter earnings today which fell short of expectations, reflecting weak consumer demand.
First-quarter net profit fell 31 per cent to €138 million missing the €161 million forecast in a Reuters poll. Philips said in September when it unveiled its Vision 2015 targets that it wants its annual revenue growth to be 2 percentage points higher than global gross domestic product (GDP) growth between 2011 and 2015.
Mr Van Houten said today the current growth rate is below that target and he will update the market on its financial strategy and structure in the second half of the year.
Reuters