Philips, Matsushita to end venture

Electronic News, May 3, 1993 by J. Robert Lineback

as well as semiconductors, should no longer be jointly owned because of size and scope of its worldwide activities.

The deal, which must still be approved by the boards of both companies, would give Matsushita sole ownership of the semiconductor manufacturing unit. MEC was established by Matsushita and Philips in 1952. It now employs 22,000 people in Japan, the U.S., Singapore and Malaysia.

For Philips, the sale of its equity stake would raise needed cash as well as reduce its exposure to the troubles in component markets serving consumer electronics. In 1992, Philips incurred a loss of 900 million guilders ($486 million) on sales of 58.5 billion guilders ($31.6 billion) mostly because of a recession in consumer electronics markets.

Philips declined to provide details on MEC's health. "The statement is all we are willing to say," said a Philips spokesman last Friday, a national holiday on which the company was closed. Philips is expected to address some aspects of the sale when it releases its first quarter results on Wednesday.

In Philips' 1992 annual report, the company said the Japanese joint venture contributed to the 34 million guilder (US$18 million) loss it suffered among its holdings in unconsolidated companies. "The adverse economic situation and the unfavorable markets for consumer electrical goods affected the related components and semiconductor businesses," said Philips regarding MEC. "However, the lighting activities reported stronger sales and income."

While many of MEC's products are aimed at serving consumer markets in general and Matsushita's own captive needs in particular, the venture has been adding new semiconductors that serve a range of system applications in computers and automation.

Matsushita, with MEC, was ranked as the 10th largest semiconductor maker in the world by Dataquest, which estimated 1992 worldwide sales at $1.93 billion, or about a 2.9 percent market share. Philips was ranked No. 9, with $2.1 billion in sales.

"Obviously, the benefit that Philips gets is a massive cash injection, which they can use for further investments, and if they are going to continue their cooperation with Matsushita, then they really lose nothing," said Mike Glennon, senior analyst at Dataquest's office in London.

The two companies will continue to exchange licenses in semiconductors, displays and lighting productions, according to Philips. The two also "intend to continue their cooperation in the future," said Philips in the prepared statement. Among key product areas being jointly promoted by Philips and Matsushita are CD-I as the next-generation media for interactive systems and Digital Compact Cassette (DCC) as a future format for audio recordings.

Industry observers do not expect the MEC joint venture's end to have an impact on Philips' semiconductor sales in Japan, which are estimated to be close to $100 million--accounting for about half of Europe's small Japanese market share. "It (MEC) was really never a sales relationship," said Malcolm Penn, president of In-Stat Europe in the U.K. "It was a technology relationship and that can be maintained without Philips owning a stake in the venture."