* Blames price erosion, sales drop in traditional bulbs
* Says EBITA ex-items to rise in H2 from last year
* Says still expects 2014 to be a challenging year
* Shares drop 1.5 pct, underperforming main index
(Rewrites, adds CEO comment, background, shares)
By Harro Ten Wolde
AMSTERDAM, July 21 Philips is speeding
up the transformation of its lighting unit as more customers
switch to its energy efficient LED products at the cost of
traditional light bulbs, the Dutch group said on Monday.
As a result Philips will increase the amount it expects to
spend on the overhaul, which may include scaling back production
or even closing factories making traditional lightbulbs, to 170
million euros ($229.96 million) in the second half of the year
from 100 million.
The move comes weeks after the company, which has recently
undergone a major revamp to put healthcare at its core along
with lighting, announced plans to combine its light-emitting
diode (LED) and automotive lighting businesses in a stand-alone
The Dutch group blamed falling prices for LEDs and a drop in
sales of traditional light bulbs during the second quarter.
Philips' LED sales rose 43 percent in the second quarter and
represented 36 percent of total lighting sales, up from 25
percent last year. Sales of traditional lighting dropped by a
mid-single digit percentage.
The market for LEDs is booming as the world switches from
incandescent light bulbs - banned in most countries - to more
efficient and durable lights.
But a price war for LED bulbs is eating into its profit,
leaving Philips and German rival Osram - spun off from
its parent company Siemens last July - scrambling to
develop new technology and seek out new markets.
Philips said it is too early to announce what this phase of
the overhaul will entail, but in the past the Amsterdam-based
company has sold or closed factories making incandescent bulbs.
Analyst Nick Wilson at Espirito Santo Investment Bank said
the decline in Philips' traditional business remained high and
that he would stick to his "neutral" recommendation on the stock
until the fall would "abate to manageable levels".
Philips shares were down 1.5 percent by 1200 GMT,
underperforming a 0.4 percent weaker Dutch blue chip index
Philips, which warned on July 8 that its healthcare business
would miss forecast earnings, said it expects the division to
show an improvement towards the end of the year into 2015.
The unit, which accounts for 40 percent of company sales, is
set to benefit from rising demand for its scanners and nuclear
medicine products from emerging markets, Van Houten said.
Philips reported second-quarter earnings before interest,
tax and amortization (EBITA) of 415 million euros ($562 million)
and net profit of 243 million on sales of 5.3 billion.
Analysts in a poll commissioned by Reuters had forecast net
profit of 164 million euros and EBITA of 400 million on sales of
The company said it expects EBITA excluding special items to
rise in the second half of the year after cost-cutting measures,
but said the rise would be not enough for a full-year increase.
"We are on the right track," Van Houten said on a conference
call. "But overall we expect 2014 EBITA to be lower than in the
Analysts polled by Reuters on average expect a drop of 6
percent in EBITA excluding special items, to 2.4 billion euros.
Van Houten repeated that 2014 would be made challenging by
the Ukraine crisis, which deepened after the crash of a Malaysia
Airlines plane killing all 298 people on board, including 193
He said that two Philips employees and their families were
on board the plane. Philips, which has been doing business with
Russia for more than a century, said it would follow any
government measures but also called for a cautious approach.
($1 = 0.7393 Euros)
(Editing by David Holmes and Louise Heavens)