The ratings on Koninklijke Philips Electronics N.V. (Philips) continue to reflect the company's diversified business portfolio and solid positions in several core business segments--which mitigate its exposure to the cyclical, capital-intensive semiconductor industry and its weak profitability in consumer electronics. The recent strengthening of Philips' positions in the medical-systems industry has helped strengthen its overall business profile, albeit at the expense of debt-protection measures. Although third-quarter 2002 results underpinned continued weak sales in Philips' semiconductor, components, and consumer electronics divisions (its main business divisions), improving free cash flow generation and reduced debt are viewed as positive signs for the medium term. Cost cutting and focusing on working-capital improvement have helped the group to mitigate the impact of depressed operating margins
