The announcement that Royal Philips Electronics N.V. (NYSE: PHG; Amsterdam: PHI) is leaving the consumer electronics business and will sell its Lifestyle Entertainment Business -- which includes its audio, video, multimedia, and accessories -- to Japanese consumer electronics company Funai Electric Co. for $201.8 million is a reminder that change is constant, and there are no guarantees that today's trendsetting products will be popular in five or 10 years.
The news marks a milestone in the history of consumer electronics; after all, it was Philips that invented many technologies that have had an industry-wide impact. Products like the compact cassette unveiled in 1963; the videocassette recorder; and, in partnership with Sony, the launch of the compact disc in 1983 were transformative technologies for a while. Unfortunately, Philips could not keep up with the digital entertainment age of downloading information and entertainment over the Internet with personal computers, tablets, and other products that are cheap and easy to use.
The painful impact of new technologies over the last decade, and Philips's inability to outdo its competitors, has resulted in the company shedding its business units in an effort to become a more vibrant business enterprise. In doing so, it has restructured its supply chain and is focused on fewer business divisions.
Many of us can remember having a Philips TV in our households, but as the years rolled on and the company had a tough time competing in the TV market, Philips Electronics entered into an agreement that ceded 70 percent ownership of its TV business to Hong Kong-based TPV Technology Ltd. The 2011 partnership between both companies was one of many deals struck during nearly a decade of transition.
In 2004, Philips sold its PC monitor business to TPV for about $358 million in 2004. Then in 2006, the company sold the remainder of its mobile phone manufacturing division to China Electronics Corp. In 2006, the company also sold the majority stake in its semiconductor business to a consortium of equity investors for $10.6 billion.
The bottom line is that Philips has transitioned from a large multinational conglomerate to a company now focused on lighting, healthcare equipment, and wellbeing products, which includes shavers and electronic toothbrushes. My, how the mighty have fallen. Still, that's not the way Philips sees it. Frans van Houten, Philips's chief executive officer, described the sale of its Lifestyle Entertainment Business this way in a statement:
With this transaction we are taking another step in reshaping the Consumer Lifestyle portfolio and transforming Philips into the leading technology company in Health and Well-being.
Today, many companies that were once the dominant players in their respective areas of business are facing troubled times. In recent days, Fitch Ratings has taken the ominous step of downgrading the debts of Sony Corp. and Panasonic Corp. to junk status and declared that both companies must radically restructure their business if they want to revive their corporate balance sheets.
Speculation that Dell Inc., once the number one personal computer company in the world, is in talks with private equity firms to complete a leverage buy-out is another example of how challenging the consumer electronics market has become.
I'm sure there will be more stories of companies selling parts of their consumer electronics business in order to stay relevant and competitive in an ever changing marketplace. I'm expecting more companies to go the way of Royal Philips Electronics. The question is, which ones will do so? At what stage in their restructuring plans will they make the decision to sell all or parts of their business? And for those companies acquiring these assets, how forcefully will they be able to compete after the purchase?