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Who's Beating The Downturn


International Business

WHO'S BEATING THE DOWNTURN

Roberto Schisano is on the road, as usual, flitting between his home in Rome, his headquarters in Nice, and a personal office in Brussels. But these days, the president of Texas Instruments Europe is running faster than ever to keep up with what has become an anomaly in European business: growth. Computer makers and others are devouring TI's microchips, boosting sales 25% this year, to about $875 million. That has Schisano scrambling to complete by next year a $500 million expansion of his plant in Avezzano, Italy--opened just 18 months ago--while scouring Europe for a new site to open by 1996. "The market is very, very hungry," he says.

How's that again? Is this the Europe mired in 12% unemployment, with bleeding industries and rock-bottom consumer and investor confidence? Indeed, for Europe's worst recession in two decades, the end is still not in sight. Yet TI is not a lone beacon on the dismal economic landscape.

From mobile phones to pharmaceuticals and pay-TV, some companies are posting surprising sales and profits (table). These winners have spent years restructuring, refocusing their strategies, or spending heavily on innovative products--or a combination of all three. Their success offers hope to others still waiting to benefit from Europe's single market.

Take Stockholm's L.M. Ericsson. After slashing worldwide payroll by 11% over three years, to 64,000, the leader in mobile-phone network equipment is adding 2,000 engineers and other professionals in Sweden this year and investing $220 million in new facilities. Likewise, Franco-Italian chipmaker SGS-Thomson Microelectronics is hiring 2,000 workers worldwide, including 180 researchers at a new chip-design center in France. "We're one of the rare industrial firms creating new [skilled] jobs in Europe," says SGS President Pasquale Pistorio. Like TI, Intel Corp., and others, SGS is riding a boom in chip demand from makers of cheap personal computers and telecommunications gear.

Another surprise is this year's 35% surge in mobile-phone sales, expected to hit nearly 2.5 million units. A new European digital standard has ignited fierce price rivalry that, in turn, is unleashing huge pent-up demand. So despite falling phone prices, producers such as Ericsson, Motorola, and Finland's Nokia are cleaning up on volume contracts.

Innovation is also the key to beating the malaise in Europe's $65 billion drug industry, battered by government moves to cut health-care costs. Profits of Switzerland's Roche Holding Ltd. are expected to soar about 26%, to $1.7 billion this year, thanks largely to new drugs emerging from stepped-up research and development in the mid-1980s. "We're harvesting our investments of the past," says Chief Financial Officer Henri B. Meier. And Sweden's Astra is set to report an even steeper rise, led by sales of anti-ulcer drug Losec. BNP Securities analyst Ian Broadhurst expects Astra's pretax profits to jump 35%, to $860 million, on a 40% sales spurt, to $2.7 billion.

HOT TUBS. Recession clearly plays to the strengths of industries such as pay-TV channels, which offer a cheap treat for recession-stricken consumers. After merging two rival networks in 1990 and cutting staff by nearly 80%, Rupert Murdoch's British Sky Broadcasting turned its first operating profit--$93 million in the year ending June 30, on a 63% sales jump, to $574 million. Subscriber growth at channels in Belgium and Spain will also kick in profits for the first time this year at Canal Plus in Paris, "proving that pay TV is a good business even in a depressed market," says Bruno Delecour, vice-president for marketing.

The best managers are plowing back profits to reap even bigger gains when Europe revives. Sweden's Svenska Cellulosa, with pretax profits nearly tripling, to around $163 million, is investing for the first time in years. Much of a $372 million capital budget will go into a low-cost British newsprint mill to compete against imports from North America.

Still, such positive signs don't spell an end to Europe's frantic restructurings. Even Texas Instruments' Schisano plans to cut 10% of TI's European payroll of 6,000 next year as a cushion against the next cyclical downturn in chips. "Even in good times, we have to constantly rethink how we're deployed," he says. That should keep the tireless Italian on the road for some time to come.NO RECESSION AT THESE OUTFITS

SWEDEN

ERICSSON Cost-cutting and new digital technology are expected to more than

double the mobile-phone maker's 1993 profits, to $228 million, on a 28% sales

jump, to $7.5 billion

SVENSKA CELLULOSA Lower costs and new diaper products are likely to triple

paper producer's 1993 profits, to $163 million, on a 6% sales increase

SWITZERLAND

ROCHE HOLDING Payoff from heavy drug R&D spending, plus financial gains on cash

hoard, push 1993 profits up about 26%, to $1.7 billion

FRANCE/ITALY

SGS-THOMSON MICROELECTRONICS Booming demand for chips is sparking an estimated

25% sales rise this year, to $2 billion

DATA: COMPANY REPORTS, MERRILL LYNCH & CO., BNP SECURITIES, MORGAN STANLEY &

CO., NATWEST SECURITIES CORP.

Jonathan B. Levine in Paris, with Julia Flynn in London, Karen Lowry Miller in Bonn, and bureau reports


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