TCL Multimedia, TCL Comm '04 Earnings Down On JVs"

HONG KONG -(Dow Jones)- TCL Multimedia Technology Holdings Ltd. (1070.HK) and TCL Communication Technology Ltd. (2618.HK) reported poor 2004 results Monday, partly because of losses contributed by joint ventures with French partners.

Shares of the units of Shenzhen-listed Chinese consumer electronics firm TCL Corp. (000100.SZ) fell sharply after the companies indicated there would be no immediate turnaround in their loss-making joint ventures.

Handset manufacturer TCL Communication posted a net loss of HK$378.4 million for the three months ended Dec. 31, reversing a net profit of HK$232.3 million in the same quarter of 2003. For 2004, its net loss was HK$223.5 million compared with a net profit of HK$784.2 million in 2003.

Meanwhile, TV manufacturer TCL Multimedia posted a net profit of HK$34.3 million in the fourth quarter, down from HK$239.2 million in the same quarter of 2003. For 2004, net profit fell 51% to HK$316.7 million from HK$641.8 million, while revenue increased to HK$25.60 billion from HK$15.15 billion.

On Monday, TCL Multimedia's shares fell 4.9% to HK$1.75, while TCL Communication ended 3.6% lower at HK$0.54. Both are listed in Hong Kong.

Both JVs Still Not Out Of Woods

TCL Multimedia said its net profit drop was due to the absence of revenue from its spun off handset business and losses suffered by its television joint venture with Thomson SA (TMS).

In the third quarter of last year, TCL Multimedia spun off the mobile handset business as its parent wanted to split the TV and handset operations into two different entities.

Prior to the spinoff, TCL Multimedia held a 40.8% interest in the handset business, which contributed substantially to its earnings.

Meanwhile, the Thomson joint venture TTE Corp., which was formed in August, posted a loss of HK$62 million in 2004.

The company said as synergies and cost control measures over TTE's operations in Europe and North America take time to take effect, the joint venture's net loss position won't turn around in the short term.

It added that the 67%-owned joint venture will continue to record a loss in the first quarter or the most part of the first half of 2005, with profitability more likely to come in the second half of the year, partly thanks to seasonally stronger performance in the period.

"We realized that the challenge (to turn around Thomson's business) is a lot bigger than expected," TCL Multimedia Managing Director Vincent Yan told reporters at a briefing.

Yan said the break-even point for Thomson's operations in Europe and North America is likely to come in the middle of 2006 at the earliest. When the joint venture was first formed, TCL had hoped that a turnaround would take place in 18 months.

Marvin Lo, analyst at BNP Paribas Peregrine, said some brokerages, which had previously factored in a turnaround in late 2005, are likely to cut their 2005 earnings estimates for TCL Multimedia

"This means that investors will need to wait for two years before any significant improvement in the Thomson business," Lo said.

Meanwhile, TCL Communication, which has a 55:45 joint venture with Alcatel SA (ALA), was hit by competition both in China and overseas as well as losses in the joint venture.

"The operating environment in the China handset market as a whole was simply difficult," the company said in a statement.

In China, business was hurt by sluggish growth, an oversupply in capacity, as well as competition by foreign vendors and slow rollout of new products by TCL Communication. TCL also made a provision of HK$145 million for handset inventory during the year.

The average selling prices fell as much as 20% on year because of those challenges.

At the same time, the newly established joint venture TCL & Alcatel Mobile Phones Ltd., which began operations in September, had yet to generate synergies. Against this backdrop, the global handset market was also marred by competition, TCL said.

TCL Communication sold 6.7 million handsets in China under the TCL brand, a decline from 9.5 million in 2003, while its market share dropped to 6% from around 11%, though it still held to one of the top five positions.

Under the Alcatel brand, the company sold 2.5 million handsets, mainly outside China. The joint venture, of which operations span over 50 countries globally, posted a loss of HK$258 million during 2004.

Gross margin for handset operations not included in the Alcatel joint venture fell to 14.4% in 2004 from 21% in 2003, while the margin for the Alcatel joint venture was 13.1%.

TCL Communication Managing Director George Guo said gross margin for the handset arm continued to face immense pressure in the first quarter.

"From what we can see now, the market outlook for this year isn't optimistic," Guo said, suggesting a continued downtrend in margins.

-By Julie Wang, Dow Jones Newswires; 852-2802-7002; julie.wang@dowjones.com

-Edited by Jenny Paris

(END) Dow Jones Newswires"

Posted to the site on 18th April 2005