Royal Philips Electronics N.V. (NYSE: PHG; Amsterdam: PHI) is facing significant challenges in its operation. The company is losing momentum in the consumer electronics market, and regaining its footing will require some painful actions, according to company executives.
In the second quarter
, the company reported sales of 5.2 billion euros ($7.3 billion), compared with 5.4 billion euros ($7.5 billion) in the comparable 2010 quarter. During the same period, it reported profit of 262 million euros, versus a loss of 1.4 billion euros in the second quarter of 2010. The lighting and consumer lifestyle divisions were particularly susceptible to the demand drop-off
. With no performance improvement in sight for the rest of 2011, Philips is taking numerous short-term steps to get back on course. Among them, the company aims to cut costs by 500 million euros, or $705 million, by 2014, and will buy back 2 billion euros worth of its shares over the next 12 months.
Frans van Houten, president and CEO, said during an analysts' call that Philips has set additional targets, including increasing sales by 4 percent to 6 percent by 2013 -- assuming real gross domestic product growth of 3 percent to 4 percent -- and getting margins on earnings before interest, taxes, and amortization to between 10 and 12 percent (from the current 7.1 percent).
He also spoke about Philips' plans to capture growth in the healthcare segment and restore profits in the lighting group. He talked, too, about the decision in April to spin off its money-losing TV unit and form a long-term joint venture partnership with Hong Kong-based TPV Technology Ltd., which has a 70 percent stake in the entity.
"It's been quite an eventful three months since assuming the CEO position at Philips. I've been working with my team on improving execution and performance across all sectors," van Houten said. "We have gone deep and been hands-on on our approach. Despite operational challenges we see in some of our businesses, I'm hopeful that Philips has the potential for profitable growth."
To actually achieve the turnaround, van Houten and CFO Ron Wirahadiraksa, as expected, pulled out all the buzzwords one would expect to hear in a call outlining wishful improvements.
Executives are reviewing management layers and staffing levels while looking to reduce complexity, increase efficiency, and provide greater accountability. Accelerate, a comprehensive performance and change improvement program, is being implemented company-wide "to realize value potential and speed up growth." And highly-attractive markets and geographies will win business portfolio favor and product innovation investment.
Almost as a nod to the anticipated eyeball rolling and muttered whispers claiming "Yeah, we've heard this before," van Houten bounced back by asking: "So, what will be different this time?" His answer in the quarterly earnings slide presentation is this:
- We have a strong portfolio, with good positions in growth and mature markets, and
- Have identified the operational issues which we will deal with decisively, to
- Drive granular execution of our plans and make the necessary investments in people, systems and markets to deliver profitable growth and return on invested capital, by
- Leveraging a new culture of entrepreneurship and accountability.
After hearing this, I kind of shrugged my shoulders. It doesn't matter if it's 1997 or 2011, does it? Promised recovery, after any significant decline, always seems to circle back to commitments to get a handle on operations, efficiency, spending, and execution. Time will tell if anything novel sticks from the latest pledges. For Philips' sake, I hope something different does take root this time around.