Philips Plans Restructuring, New Focus on Healthcare Technology

The brass at Dutch industrial giant Philips have unveiled plans to split the diverse multinational in two parts.

Following a series of consecutive profit warnings Philips officials said they would merge the company’s healthcare and consumer electronics divisions into a single company. The company’s leadership also planned to spin off the firm’s 123-year-old lighting business—either in an initial public offering as early as 2016 or possibly sold to investors, the company’s CEO said.

CEO Frans van Houten announced plans on the same day the company issued its second profit warning in less than three months. Operating profit for the second half of 2014 will fall below the level of 2013, according to the company.

“Philips is uniquely positioned to help reshape and optimize population health management by leveraging big data and delivering care across the health continuum, from healthy living and prevention to diagnosis, minimally invasive treatment, recovery and home care,” van Houten said in a 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 claims that its HealthTech businesses already have leading positions in oral healthcare, healthcare informatics, ultrasound diagnostics, cardiac care and home healthcare.

Officials attribute the lower operating profit to problems at a medical imaging facility in Cleveland, Ohio, which was shut down following an inspection by the U.S. Food and Drug Administration. China’s sluggish economy also is to blame.

Philips was founded in 1891 with a focus on lighting. Over the past decade, however, it has refocused on more profitable activities such as healthcare, while selling its chip-making and TV businesses. (Company trivia: Philips invented the audio cassette and compact disc). It currently employs 113,000.

Van Houten said Philips has been facing the same challenges as other corporate giants that have been slow to adapt to a new world. The split means Philips will focus on its HealthTech division, which leadership clearly has identified as the company’s best growth opportunity for the near future.

He said the split will create two “market-leading businesses” in healthcare and lighting. Both businesses will continue to operate under the Philips brand and will be based in the Netherlands, he added.

The healthcare business reported $12.8 billion in sales in 2013. This summer, Deborah DiSanzo, the head of Philips Healthcare, stepped down and van Houten took control of Healthcare, which was the worst-performing Philips business during the second quarter (down 4 percent).

The change will generate a total of 300 million euros in cost-savings in 2015 and 2016 but it could result in job losses,
officials said.