TCL to close European operations

(Shenzhen Daily)
Updated: 2006-11-02 09:27

TCL Multimedia Technology Holdings, which reported a nine-month loss of HK$1.52 billion (US$195 million), said Tuesday that it would shut its European unit in an effort to return to profit.

The cost of the reorganization of the European unit will be about US$57 million and will largely go toward severance pay, the Hong Kong-listed company said, without disclosing the number of jobs to be cut. TCL Multimedia will restart its business in Europe under a new business model after the wind-down of its TTE Europe unit, it said.

TCL Multimedia joins Asian companies including Lenovo Group and Benq in posting losses after making overseas acquisitions.

TCL Multimedia's parent, TCL Corp., has forecast a second consecutive net loss this year as the company's chairman, Li Dongsheng, struggles to turn around the unprofitable TV business TCL bought from Thomson in 2004 to form TTE, the world's biggest TV maker.

"TCL's losses should certainly narrow, but they must still find a way to compete in Europe and make that business profitable," Randy Zhou, an analyst with Bank of China International in Shanghai, said.

TCL Multimedia said European revenue would fall in 2007 from 2006 before recovering in 2008. The new structure will reduce operating costs drastically and pave the way for a return to profitability for the operations in 2008, according to the statement.

TCL Corp., China's biggest publicly traded consumer electronics maker, and Thomson agreed to merge their TV and DVD units in November 2003, creating TTE. The company was established mainly with assets for the production and sale of traditional cathode ray-tube TVs at a time when consumers demand was switching to flat-panel sets.

"TCL didn't anticipate how quickly people would switch to flat-panel TVs, and now they're playing catch-up," Zhou said.

For the third quarter, TCL Multimedia returned to profit as its flat-panel TV sales posted a "strong" increase from a year earlier, the company said this month. Net income for the quarter was HK$81 million, compared with a loss of HK$179 million a year earlier, the company said. Sales fell 11.5 percent to HK$6.9 billion as demand for TCL's cathode ray tube TVs, the biggest contributor to revenue, continued to decline.

Thomson in August 2005 exercised its option to convert its 33 percent stake in TTE to shares of TCL Multimedia, raising its holding in the company to 29.3 percent. TCL Corp. owns a 38.7 percent stake in TCL Multimedia.

In Europe, TCL Multimedia owns a factory in Zyradow, Poland, and leases a plant from Thomson in Angers, France.

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