Philips Will Get By After Ukraine Crisis

NEW YORK (TheStreet) -- Shares of Philips (PHG) are down nearly 10% over the last month amid heavy volume, and the company reported profits for the first-quarter below consensus estimates last week.

Which means to me that Philips, and Europe, are going to be all right.

Philips had most of the usual excuses in its earnings release, such as China, Russia, and the strong euro, and it warned that the outlook in the near term is hazy. But the company managed to earn 314 million euros before interest, taxes, depreciation and amortization, and it's moving ahead with its restructuring.

For the quarter Philips reported revenue of 5.02 billion euros, down 4.5% from 5.26 billion euros in the year-ago period, with net income of 138 million euros, down from the 161 million euros earned in the first quarter of 2013.

That's not terrible given that the euro has strengthened 3 cents against the dollar since early February and the whole eurozone has been made increasingly nervous due to the Ukraine crisis, which impacts key Philips markets.

Philips will get by.

As part of its ongoing restructuring, Philips is selling its WOOX Innovations audio unit, which operates out of Hong Kong, to Gibson Brands, best known for its musical instruments. The price is $135 million.

The Philips name, however, will remain on WOOX equipment through 2017, as intellectual property assets are untangled. Like Philips, some of WOOX's products run on Android software.

Shares in the company had marched forward nearly 70% since it announced its broad restructuring in early 2012. The restructuring puts it in a sweet spot of home automation, with a line of entertainment products, appliances, and LED lighting fixtures just begging for software to connect them all together.

Philips is looking to Google (GOOG) Android to do the connecting. It has even brought out an Android phone. Software for its line of LED light bulbs, called Philips Hue, is also available on GitHub, the open-source software repository.

The company has a number of other Android apps working with its products, including Fidelio for lighting and MyRemote for its TVs. Its new line of TVs will all run Android software as Philips becomes an increasingly important Android OEM.

Philips is also taking its LED and Android expertise into government markets, teaming up with Ericsson to create a "lighting as a service" model for cities, with Ericsson providing the wireless broadband and Philips supplying the bulbs and software. 

So while the short term does indeed look "challenging," as the company admits, Philips seems to be in a good position to take advantage of the "Internet of Things," with lots of things that need connecting and Android software to connect them all. As tension fades and the euro falls, the shares could do very well.

At the time of publication the author owned shares of GOOG.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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