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Turmoil in Consumer Electronics Market

The announcement that {complink 4267|Royal Philips Electronics N.V.} 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?

8 comments on “Turmoil in Consumer Electronics Market

  1. Cryptoman
    February 4, 2013

    I was very surprised to hear Philips has left the consumer electronics. It's almost unreal. They were really good at what they were doing. Sometimes being good means little if a company cannot keep up with the competition. The important thing is to be able to make the tough decisions in a timely fashion like Philips has done. There is no point in throwing money into a bottomless pit until the point of no return. Time will tell whether this decision will pay off for Philips.

  2. _hm
    February 4, 2013

    Philips had dormant and old management. It needed much more of youger blood in its management to prolong its life. It is not late them to get them in other Philips products.

  3. prabhakar_deosthali
    February 5, 2013

    Here in India , Philips wound up its Consumer electronics business much earlier and now it has also announce that it is exiting the Home appliance business.

    Philips which was house hold name in India for decades has now been almost forgotten except for their lighting products.

    It is really sad to see such reputed brands vanishing after giving reliable products to the consumers for many generations

  4. elctrnx_lyf
    February 5, 2013

    May be philips has done a right thing by making a decision to come out of the consumer electronics products. They have better products in Healthcare which could play vital role in the success of the company. It is better to concentrate important business segmens. Just like play the game you can win.

  5. FLYINGSCOT
    February 5, 2013

    I will tell you how to succeed in business……..

    Philips is known for well engineered high quality products.  Case in point I bought an electric kettle from them 20 years ago and it is still going strong and you know how we Brits like to drink hot tea.  Nobody covets that kettle but instead see it as a dependable member of the family dutifully going about its business everyday without a fuss.

    Apple on the other hand make products that my children covet and incredibly manage to last about 4 days longer than the one year warranty Apple offers. When the phone or tablet inevitably breaks, which they always do, I am badgered to go out and buy new ones for the kids.  

    So from one company I buy one thing every 20+ years for $30 and the other company I am forced by the ones I love to buy several products costing $400 each almost every year.

    You can do the maths.

  6. mfbertozzi
    February 7, 2013

    @_hm: maybe they are in the negative slot of the trend that usually describes the evolution of a given company; but it happened several times also for big players, it comes an unpredictable recovery for reaching again the passed outstanding.

  7. t.alex
    February 10, 2013

    With the fast changing world of technology, people simply buy stuff from LG or Samsung at reasonably cheap price, and then change to new ones the following year. There is no need to buy something from Philips that can last 30 years

  8. Cryptoman
    February 10, 2013

    I don't think that manufacturing undependable and fragile products that do not last is key to success in business. If a product I purchase breaks down too soon after I buy it or it does not meet my expectations, the manufacturer goes into my blacklist immediately. Then I turn to alternatives that will keep me more satisfied.

    Purchasing decision is the only power a consumer has to be able to push the manufacturers to put their act together and to offer more dependable and affordable products. Declining sales for a company is the most effective message today in the presence of cutthroat competition.

    I believe success depends on 3 things:

    1 – Offering dependable products thereby making a name for yourself that people trust.

    2 – Being innovative enough to come up with new lines of products that make the consumers want to replace the old kettle they have been using for a long time.

    3 – Having a bit of luck to avoid getting hit by uncontrollable economical crises, natural diseasters etc.

     

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