By Jof Enriquez,
Follow me on Twitter @jofenriq
Dutch conglomerate Royal Philips recently announced that it is splitting the company into two in order to prioritize high-margin healthcare products and services over lighting products that have been traditionally synonymous with its name.
The restructuring move will create two new companies. One will fuse the company’s existing healthcare and consumer lifestyle business units, and the other will focus on the fast-growing LED market, according to the company’s recent statement. Both companies will continue to use the Philips brand and remain headquartered in the Netherlands. The move will save the company €100 million additional savings in 2015 and a further €200 million in 2016, Philips said.
“I do appreciate the magnitude of the decision we are taking, but the time is right to take the next strategic step for Philips. Great companies need to reinvent themselves, we can do that, we can stay relevant, we can grow and we can stay successful. It takes courage but it's a path we've been preparing for carefully,” Philips Chief Executive Frans Van Houten said in the company statement. The restructuring will be completed after 18 months.
One Philips spokesperson said it was “too early to say” whether there would be heavy job losses resulting from the corporate restructuring, but added that the company’s decision was not solely based on cutting costs, according to the Financial Times.
As the FT noted, Philips has in the past decade spun-off poorly performing units such as its semiconductor and television businesses to counter sluggish growth. The split will allow it to refocus yet again — this time on healthcare.
“The HealthTech businesses already have leading positions in, for example, oral healthcare, healthcare informatics, ultrasound diagnostics, cardiac care and home healthcare, and serve a total addressable market estimated to exceed EUR 100 billion,” the company said in the statement. “The combination of our Healthcare and Consumer Lifestyle portfolios and the integration of the data from the connected products on Philips’ cloud-based digital health platform illustrate our opportunity to capture growth in an increasingly connected world, where societies are looking for more effective and lower cost health solutions.”
Philips said in the statement that the newly formed HealthTech business will “capitalize on the convergence of professional health care and consumer end-markets across the health continuum, from healthy living and prevention, to diagnosis, treatment, recovery and home care.”
A Wall Street Journal report said that Philips’ existing healthcare business posted €10 billion ($12.8 billion) in sales in 2013, while the consumer electronics business generated €5 billion. Philips’ new standalone Lighting business could possibly spin off as an initial public offering as early as 2016, the WSJ said. The business generated €8 billion in revenue in 2013.
Forbes’ Marcel Michelson thinks that Philips Lighting could merge with rival Osram, while Philips HealthTech could “either beat or join GE Healthcare to stay abreast in the global market.” Both businesses could also attract bids from Asian rivals, he said in his article.