Philips Lighting Leaves Behind Product Sales Model

News Source: 
Nikkei Technology

“We are no longer an integrated electronic manufacturer,” a Nikkei Technology report cited a solemn Philips technician saying.

Founded in 1891, the Dutch electronics conglomerate was once coined “the King of Home Appliances” and was once the “European giant” in the TV sector. Yet, the company’s gradual business transition has resulted in its shift towards health and lighting businesses.

“We are focusing on providing valued services to our clients,” said Frans van Houten. “Philips has been founded for 120 years, but some businesses have ‘died out’ during the process. This is why we decided to split our TV business. We are an innovative company, and will continue to seek growth through these two new businesses.”

Philips announced splitting its company into HealthTech and Lighting businesses on Sept. 23, 2014. The company also spun-off its lighting department into an independent company. Based on its 2013 sales revenue, the company’s HealthTech business revenue reached about EUR 15 billion (US $18.31 billion), while its lighting business was EUR 7 billion. The company plans to complete the spin-off within the next 12 to 18 months.

After splitting its TV business in 2011, Philips and Taiwan’s TPV Technology formed a new joint venture TP Vision. The Dutch company officially exited the TV business, after announcing its decision to sell all its stake in TP Vision in January 2014.

As for HealthTech business, Philips believes “there are still many challenges in this sector,” and decided to upgrade it into “core business”. Philips estimates the potential health business market value is EUR 10 billion.

Following this announcement, the company’s lighting business was split into an independent company to increase the company’s flexibility and improve its decision making process. The company will be focused on developing LED lighting and offering added value services.

Philips has continued to selectively converge its resources to rebuild its business performance. Since splitting its business, the company basically was left with “no choice.” The company has entrusted its future direction to its health and lighting businesses. The company even unveiled its health and lighting businesses latest research results to 2,000 international Philips employees and 200 reporters at Philips Innovation Experience 2014 held in Eidenhoven, Netherlands from Sept. 29-Oct. 1, 2014.

Lighting business transits from product sales model to solution provider

“The lighting industry is at one of its greatest turning point since the invention of incandescent bulbs,” said Frans van Houten. Philips decision to split with its traditional lighting business indicates LED lighting’s rising market penetration. Despite LED lighting markets gradual expansion, due to incandescent bulbs and fluorescent bulb replacements, Philips has also launched low-price strategies to compete with Asian manufacturers in the increasingly competitive market. Due to LED lighting’s long lifetime, the replacement time is often longer. Philips is also striving to become a solution provider rather than a manufacturer that retails its products. Additionally, the company aims to be the leading manufacturer in the lighting field.

Philips Hue, a smart LED bulb, which can be controlled via smartphone and Internet connection is an example of the company’s added value product. The smart light can be used to aid those with hearing impairment and rely on visual cues and sign language, and light up in different brightness or colors to indicate incoming calls. The company demonstrated this system in a room using Hue Bridge’s Application Programming Interface (API).

Philips also demonstrated smart LED lighting applications in commercial buildings and large infrastructures. In the near future, LED lighting control will be more precise to meet convenience demands. Philips also displayed Power over Ethernet (PoE) LED lighting applications, for example the lights can send control signals while adjusting brightness, thus lowering energy consumption through meticulous control. 

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