JAN. 31, 2013 • Once the largest maker of radios in the world during the first half of the 20th Century, and a perennial mainstay within the consumer electronics industry, Philips Electronics has called it quits and sold its audio, multimedia, video and accessories units to Japan’s Funai Electric Co. in what the Wall Street Journal termed the token sum of €150 million ($204.1 million). Philips had a long history of innovation that saw the development of such successful media standards as the compact audio cassette (1963), the compact disc (with Sony in 1982), and the digital video disc (with Sony, Panasonic and Toshiba in 1995). The CD-i interactive multimedia system, that pioneered many of the features now common on video game consoles, was not a commercial success upon its launch in 1992. Citing steadily diminishing profits in competition with firms like Apple, Samsung and Sony, Philips chief executive Frans van Houten said, “Our consumer lifestyle business was margin dilutive to the group, so it was time to decide to move away from consumer electronics.” Funai said the acquisition will help the company better expand into markets such as Brazil, China, India and Russia. In addition to the purchase price, Funai is also paying Philips an undisclosed brand license fee that secures the rights for five and a half years, and includes an option for an additional five years. The audio, multimedia and accessories part of the deal will close in the third or fourth quarter, while the transfer of the video unit will be delayed until 2017 due to Philips’ existing intellectual property licensing agreements. Philips intends to concentrate on its medical equipment and LED lighting businesses moving forward.
Impact: While many have argued that consumer electronics was becoming a commodity business, companies like Apple and Samsung (as well as game hardware manufacturers) have shown that isn’t really true. In an analogy to the auto business, while a Toyota Corolla has its virtues, that in no way dampens the appeal or success of a BMW 3 Series to its targeted audience. Unfortunately, Philips specialized in utilitarian products that were solidly built but didn’t have a great deal of sex appeal to the casual consumer in a sea of commodity competitors.
At its heart, Philips has been a conservative R&D technology company. Much like Xerox pioneered graphical interfaces, it took a Steve Jobs to turn those concepts into a coveted consumer product. Similarly, Philips was way ahead in innovating modern storage media standards, but not so good at capitalizing on those standards in the marketplace. Philips tried very hard to get into the video game business, at one point working with Nintendo on the system that became the CD-i. However, competing in the go-go game space, and with innovative industrial design companies like Apple in the consumer electronics space, has never been in Philips DNA. Over the years, Philips stock has held up relatively well despite its struggles in consumer electronics. Medical equipment and lighting may not be as exciting but they are not areas that rely on increasingly fickle and unpredictable consumers.
