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Apr. 14. 2008 / 4:00AM, PHG - Q1 2008 Royal Philips Electronics Earnings Conference Call

Didier Scemama - ABN Amro - Analyst

Yes, thanks. Just to go back to Connected Displays and the whole Consumer Lifestyle division. I remember even after the fourth quarter results when we had dinner with Gerard Kleisterlee and yourself that Gerard was saying basically the TV business is not a very profitable business. We understand that, but we need it in the context of our relationship with major retailers; Wal-Mart, Carrefour and so on.

So obviously you've changed your mind to an extent being more pragmatic on profitability and now you seem to also hint that should things get worse in '08 and '09 on the European side that could also be subject to some decisive action. So I think the question I've got in mind is, to what extent does your relationship with retailers deteriorate or remain the same as you would exit first of all the US marketplace and second, potentially the European marketplace?

Pierre-Jean Sivignon - Royal Philips Electronics - CFO

Yes, I think, Didier, what you are saying, yes, it's a fair representation of the conversation of a couple of months ago. I think what we said at the time was what we don't like is our low margins. I think it's a business which, as you know very well, don't have much capital if at all invested, but it's low margin and it is perceived as volatile. And we've come to the conclusion we needed to address those low margin business. So you saw that in the Funai deal it was a matter of weeks actually between the time we talked about those decisive actions and coming up, indeed, with a plan.

But your question is even more precise. You are asking, what does that mean in terms of the quality of the relationship with the retail chain? Well, what I can tell you is that in the case of the Funai deal, which we are finalizing as we speak, we spent quite a bit of time making sure in the terms of the agreement that, since all these products will continue to be sold in the US under the Philips brand, it's as transparent as possible for the retailers. So we are going a long way in the side clauses of that agreement to make sure that it doesn't hurt the Philips image.

And as far as the retailers are concerned, even though they will know that it's coming from Funai, that the business is now being carried by Funai, it is still, vis-a-vis their own customers, very much a Philips business because it will be branded Philips for the year to come. And this agreement is a five year agreement. So you shouldn't see too much of a change of approach in our view on the quality of the relationship with the retailers because we are spending a huge amount of time on that Funai deal just to make sure that, from that perspective, it is neutral for the retailers.

Didier Scemama - ABN Amro - Analyst

Right thanks. And just a quick follow up. On the European TV business, you're saying the situation is different, you've got big market share, the brand recognition is obviously much higher. Isn't it actually an indication that you should be selling now before things get worse? Potentially the European marketplace could open up to Chinese imports and that's ruined really the profitability of the US business for everybody really. So I was just wondering if it's not an indication that things could deteriorate further and therefore it's time to move on quite quickly.

Pierre-Jean Sivignon - Royal Philips Electronics - CFO

Well, Didier, I think on Europe, I was quite clear in the call that the results of Europe in Q2 were not good either. We lost money there as well, and we've taken measures.

I think the situation there is different from one perspective which is the amount of money we have to invest in the channels in order to sell is obviously different from what it is in the US. Because, on the consumer side, the brand awareness of Philips, certainly in Europe and probably in Asia as well and in emerging markets, that includes Latin America, is significantly stronger.


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