NEW YORK, Oct. 2, 1980 -- General Telephone & Electronic Corp. said today it plans to sell its large U.S. consumer electronics business to North American Philips Corp.
GTE manufacturers both Sylvania and Philco brand sets, while North American Philips makes Magnavox televisions.
Charles Ryan of Merrill Lynch, Pierce, Fenner & Smith said that GTE accounts for about 5 percent of the 9.5 million to 10 million sets sold each year in the United States, while Magnavox has about a 7 percent share of the market.
But the key to the success of the acquisition for Philips, analysts said, is whether Magnavox can achieve cost savings in switching some GTE production to its own plants and use the GTE plants for other purposes.
Both companies lost money last year on their consumer electronic business, and it was no secret that GTE -- which last spring sold its foreign consumer electronics business -- wanted to unload its U.S. operations, as well.
On worldwide consumer electronics sales of $1.16 billion last year, GTE lost $9 million. North American Philips lost $3.7 million on sales of $405 million. Philips has said that the loss was caused by start-up costs associated with its entry into the video disc market, a home entertainment field that many believe is the growth market for consumer electronics products in the 1980s. RCA is expected to offer its video disc machines early next year.
Many analysts believe, however, that Magnavox would have lost money even without the startup of video disc machine production.
One analyst said that the GTE decision to sell its conusmer electronics business is a "positive one." They have not made much money in that business and have lost in recent years. They can now dedicate the capital that was involved in consumer electronics to position themselves to grown in the unregulated telecommunications marketplace."
GTE is the second-largest telephone company in the country, behind American Telephone and Telegraph Corop., and also is engaged in telecommunications and other electronics and electrical products. The company had sales of $9.96 billion in 1979 and earned profits of $645 million.
Glenn Pafumi of Merrill Lynch said that he anticipates earnings will fall to about $431 million this year when the provision for $150 million in losses on the sales of the foreign and domestic consumer electronics divisions is factored in.
Theodore F. Brophy, chairman of GTE, said the decision to get out of the business "eliminates a source of financial uncertainity for GTE and will have a favorable impact in 1981."
North American Philips had sales of $2.4 billion last year and earned $81.7 million. The company also makes Norelco razors and coffee makers, Genie garage door openers, Baker furniture and Philips medical systems and electronic instruments.
Frank L. Randall, chairman of Philips, said the transaction "greatly enhances Magnavox's ability to compete" in the television market and is an important step toward halting the inroads being made in the U.S. market by foreign producers. Today Japanese companies such as Sony and Matsushita (which makes Panasonic and Quasar) are the biggest competitors in the U.S. market behing Zenith and RCA.
A spokesman for Philips said that final approval of the sale is not expected until December.
Brophy of GTE said the "entertainment products and component businesses involved in the transaction will continue to operate under the Sylvania and Philco brand names. North American Philips expects to maintain the continuity of existing management and the distribution and dealer channels in these operations."
Philips will acquire 12 domestic manufacturing plants employing about 8,000 persons as well as a plant in Mexico employing about 2,800 persons.
