Philips fears losing Chinese demand as trade tension rises
Philips is worried about rising trade tensions between the US and China, says the Dutch health-technology company that is banking on continuing Chinese demand for its highend medical equipment.
Strong demand from Chinese hospitals for its ultrasound machines, medical scanners and other equipment helped Philips’ first-quarter results beat analyst expectations on Monday, but the simmering trade dispute between the US and China could threaten future earnings.
“So far the effects are modest, but we are worried about the trade tensions,” CE Frans van Houten said.
“We don’t expect any tariffs to be imposed on medical equipment, but we see indirect effects through the rising cost of commodities such as aluminium and steel,” he said. Van Houten said the firm could not isolate itself from the effects on confidence.
Philips shares rose 4.8% to à34.52, leading the blue-chip AEX index in Amsterdam.
“The [profit] beat is mainly driven by the Diagnostics & Treatment business,” said ING analyst Marc Zwartsenburg, referring to the division that makes hospital equipment. He noted a 10% rise in new orders.
Growth in the diagnosis and treatment division was especially strong in China, where Philips had double-digit growth.
“We expect to maintain this growth rate for the rest of the year,” Van Houten said. “All signals are positive and we have no reason to expect a slowdown.”
There was also strong demand from US hospitals, though the picture in Europe was less favourable as many hospitals continued to grapple with the effects on their budgets after years of austerity.
On the positive side, this had led to a noticeable uptake in the long-term partnerships Philips offered to hospitals, he said.
In the first quarter, the firm sealed eight new contracts, in which the company offers new equipment and technological assistance for a fixed yearly rate, taking the total number to more than 100 worldwide.
The division, which includes patient monitoring systems and software used by hospitals to gather and analyse data, would show better results in the months to come, the CEO said, and was still expected to hit the 4-6% sales growth target Philips has for all its divisions.
Overall, core profit in the first three months of the year rose 15% to €344m.
GROWTH IN THE DIAGNOSIS AND TREATMENT DIVISION WAS ESPECIALLY STRONG IN CHINA