One of the wonders of modern medicine is that it can improve your health, without making you feel any better. Just ask Philips' investors.

Last year, they moaned that the gains from various highly cyclical enterprises masked frailties in its core businesses. But now that the Dutch conglomerate's chips unit and the floated flat screen joint venture are in the doldrums, investors are taking little comfort from first-quarter progress in areas such as consumer electronics, domestic appliances and lighting.

That at least underlines the merits of Philips' own diagnosis: it needs to foster its more defensive bits to reduce earnings volatility, for which the huge gaps in analysts' estimates are symptomatic. The snag is that its main prescription beefing up its medical unit through costly acquisitions has had mixed effects so far. The unit's meagre underlying sales growth of 5 per cent partly reflects last year's strong medical services revenues. Product sales are said to be excellent, which should eventually drive higher service revenues. New products may also be starting to offer some protection from price competition. Still, progress remains insufficient to justify more medical purchases.

While Philips' share price has dropped 10 per cent over the past few weeks, it is still trading at 14 times this year's earnings. Compared to peers, this is hardly outrageous. But consensus estimates are again looking a bit too sanguine. It might take a while for the feel good factor to return.

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