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Philips, the Dutch electronics group, gave its clearest signal yet that it may sell or spin off its ailing semiconductor unit, saying that it would consider “all options to bring value to shareholders”.

The company said it would start the process to create a separate legal structure for the business, paving the way for a sale or float. “There are various M&A options we will explore,” said Frans van Houten, the division’s chief executive, adding that the move would give the unit more flexibility.

Investors welcomed the company’s decision, sending Philips shares 4 per cent higher to a 52-week high of €26.30.

Mr van Houten predicted consolidation in the industry within the next five years. “Scale will matter for long-term success,” he added. As a standalone company, the division – which generates about €5bn (£3.4bn) of Philips’s €30bn annual revenues – would lag behind only Infineon of Germany and the Franco-Italian STMicroelectronics in the European chip market.

Gerard Kleisterlee, Philips chief executive, said the move “will open up various strategic options for us”, but declined to comment on whether the group was already in talks with other parties. Mr Kleisterlee had hinted last month that he might sell the chip unit if it did not meet performance targets.

However, he said at the time any move would be “towards the back end of 2006”, after restructuring savings materialised. Philips said in September that it was seeking to strip out €250m of annual costs at the unit.

Earlier this year, Philips introduced a business renewal programme to improve the division’s competitiveness and map a margin range of between 5 per cent, at the bottom of the industry cycle, and 15 per cent at the top. Semiconductors posted a 10 per cent operating margin in mid-2003. By early 2005 that had tumbled to barely 2 per cent.

In the third quarter, operating profits from chips dropped to €90m from €179m in the same period last year. Sales rose by
2 per cent to €1.19bn.

Philips has been seeking to move away from businesses with too much exposure to consumer goods, such as chips and electronics, and focus on more stable areas such as medical systems, lighting and appliances.

On Wednesday, it cut its stake in LG.Philips, its South Korean flat-screen joint venture, from 37.9 per cent to 32.9 per cent.

Copyright The Financial Times Limited 2019. All rights reserved.

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