Analysis: Philips turns off TV in turnaround

Tue Feb 12, 2013 2:04am EST
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By Sara Webb

AMSTERDAM (Reuters) - The Philips name has been synonymous with trusty TV sets and reliable video players; but in the overhaul of this lumbering Dutch behemoth over the past two years, both have been ditched.

Nothing, it seems, is sacred in Chief Executive Frans van Houten's makeover of Philips to focus on the healthcare, lifestyle and energy needs of ageing and increasingly prosperous consumers - whether high-margin electric toothbrushes and shavers, street lighting or hospital equipment.

To make Philips more lean and nimble has taken a rigorous monitoring of its entire portfolio of products and markets combined with a ruthless willingness to jettison weaklings and poor performers such as the home entertainment businesses, and to concentrate instead on higher-margin market leaders.

Van Houten picked new managers at each of the company's three core businesses - consumer lifestyle, healthcare and lighting - and is shaking up a stodgy culture in a firm that once led in R&D but sometimes fell short in the marketplace.

The company which first experimented with televisions and radios later lost out in the videotape wars of the 1970s and 1980s and did not react quickly enough when consumers shifted online for their music and other entertainment.

Van Houten has also cut jobs and overheads, including office space and IT systems, scaled back inventory to free up cash flow, and launched a 2 billion euro share buyback.

The strategy has started to pay off. The divestments and four consecutive quarters of better-than-expected results have pushed the stock to its highest level since March 2011, just before Van Houten officially took over as CEO, as Philips appears to be on track to achieve its 2013 targets.

"Exiting lifestyle entertainment for me is the real mark, these guys invented a lot of these consumer electronics we know, that is part of the Philips legacy," said Scott Cobb, principal at Southeastern Asset Management which is Philips' biggest shareholder with about 6.5 percent of the stock.   Continued...

The logo of Philips is seen at the company's entrance in Brussels September 11, 2012. REUTERS/Francois Lenoir