Royal Philips Electronics NV, Europe's largest maker of televisions, said fourth-quarter profit fell as semiconductor demand and LCD sales slowed. The company said it's ``cautious'' about the first-half outlook.

Net income fell to 498 million euros ($651 million), or 39 cents a share, from 598 million euros, or 46 cents, a year earlier, Philips said today in an e-mailed statement. Sales at the Amsterdam-based company rose 2 percent to 9.18 billion euros from 9.02 billion euros.

Chief Executive Officer Gerard Kleisterlee has revived profit by cutting more than 50,000 jobs, last year posting the highest profit since becoming CEO in 2001. He may struggle to increase earnings as chip growth slows and flat-TV prices slide.

``The mixed signals coming from the world's major economies make us cautious, certainly for the first half of 2005,'' the company's board of management said in the statement.

The announcement came before the start of trading. Shares of Philips, have fallen 4.3 percent this year, with the benchmark Amsterdam AEX Index rising 2.4 percent.

Philips, also the world's largest maker of electric shavers, was expected to report net income of 362 million euros on sales of 8.89 billion euros, according to the median estimate of 21 analysts surveyed by Bloomberg News.

Philips said it will start a share buyback program of as much as 750 million euros ``to be executed during the next 6 months.'' Of the money, 500 million euros will be used for capital reduction with the remainder going to hedge long-term incentive and employee stock purchase programs.

LCD Glut

``2005 is filled with uncertainties from electronics to semiconductors and LCD screens,'' said Theo Kraan at CenE Bankiers NV in Utrecht, Netherlands, which manages $2.5 billion, including Philips shares, before the announcement.

Philips, Europe's biggest manufacturer of coffee machines, also controls Seoul-based LG.Philips LCD, the world's second- largest maker of liquid crystal displays, together with South Korea's LG Electronics Inc.

LG.Philips LCD on Jan. 24 said fourth-quarter net income slumped 94 percent to 35 billion won ($34 million) as flat panel prices dropped. LG.Philips LCD had been expected to post a loss in the quarter, according to a Bloomberg survey.

The net income contribution from the LCD venture for Philips fell to 14 million euros in the quarter from 199 million euros.

LG.Philips LCD, formed in 1999, said profitability may drop this quarter, as LCD prices will drop by 5 percent to 9 percent from the fourth quarter, when they fell 19 percent from the third.

Semiconductor Market

Philips expects first-quarter chip sales to fall with a ``high-single digit'' percentage number from the last quarter of 2004 in U.S. dollar terms.

Fourth-quarter sales in euros at the unit, which includes mobile-phone screens used by Nokia Oyj, dropped 9 percent to 1.35 billion euros from 1.5 billion euros a year earlier, and operating profit fell to 46 million euros from 166 million euros.

Market researchers disagree on the global semiconductor market this year, ranging from a 6 percent drop in worldwide chip sales predicted by IC Insights Inc. to the 8.8 percent increase forecast by VLSI Research Inc.

The company's chips are used in Sony Corp. televisions, Nokia Oyj mobile phones and to boost battery life in Apple Computer Inc.'s iPod. Semiconductors are the main components used to run electronics such as computers and mobile phones.

On Jan. 24, Infineon Technologies AG, Europe's second-largest semiconductor maker, forecast earnings and sales will decline in the fiscal second quarter, citing lower demand as customers reduce inventory and prices drop.

Medical Margin

At the medical systems unit, integrating past purchases and cost-cutting led to an operating margin, or earnings before interest, taxes and goodwill amortization as a percentage of sales, of 14.4 percent for the full year 2004, exceeding a company forecast for a 14 percent margin.

The profit margin doesn't take into account a 133 million- euro settlement to end a four-year dispute with U.S. company Volumetrics Medical Imaging Co., the company said.

Philips has spent about 5 billion euros over three years buying businesses including the medical systems units of Marconi Plc and Agilent Technologies Inc. to become the world's No. 2 maker of diagnostic-imaging devices after General Electric Co.

Philips said order intake at the medical systems unit ``remained strong.''

Stability Plan

To make earnings more stable, Philips is focusing on its medical, appliances and lighting units, businesses typically less sensitive to economic cycles than some of the company's other businesses, such as semiconductors and televisions.

The company benefited from cost cuts mainly from shedding more than a fifth of jobs since Kleisterlee, 58, took over. Asian competition in electronics, a chip slump and the dollar's drop forced Kleisterlee to close or move plants and pare jobs.

Philips is focusing on designing and selling electronics and farming out production of items such as videocassette recorders to Funai Electric Co. to lower costs in an industry where competition from companies including Samsung Electronics Co. and China's TCL Corp. is eating into profit margins.

Fourth-quarter earnings included 576 million euros to write down the value of a stake in MedQuist Inc., a U.S. transcriber of patient records that is being investigated by the Securities and Exchange Commission.

Philips also booked about 590 million euros in gains from selling all or part of its holdings in ASML Holding NV, Europe's largest maker of semiconductor equipment, Atos Origin SA and Vivendi Universal SA in November and December.