News

31/7/2003

Philips Announces Details of Business Realignment for Consumer Electronics Division

Greater focus and additional cost savings of EUR 400 mn by 2005 Amsterdam, The Netherlands, July 31, 2003 - Royal Philips Electronics (AEX: PHI, NYSE: PHG) today announced more details about the realignment of its consumer electronics division.

The division will increase its focus on three main product areas: displays, which are becoming more and more connected, entertainment hubs (networked multimedia devices), and infotainment (mobile audio, video and communications products), and further build on home entertainment, personal expression and productivity as marketing domains, CEO Gottfried Dutiné wrote in a letter to employees from his division around the world.

Citing fierce and relentless competition from existing brands and new entrants to the market, Mr Dutiné also announced a program to reduce organizational complexity and identify opportunities to realize annual savings in the division's cost base of EUR 400 million by year-end 2005.

"To secure our future in consumer electronics we need to operate a business model that will consistently provide us with operating margins of 2 to 2.5 percent supplemented by a 2 percent margin from licenses, while generating a positive cash flow and turning over our capital 20 to 25 times a year," Mr Dutiné wrote.

"Much has already been achieved in our division in the past years as we migrated from analog to digital, from manufacturing to marketing, and from a broad to a more focused product portfolio," Mr. Dutiné explained. "We expect that market developments are towards a more converged world, with increased competition and tougher rules of the game," he continued. "We will compete on the basis of marketing driven differentiation, lifecycle management, better business model designs, innovation, operational excellence, scale (organic or through alliances) and last but not least, a more competitive operating cost base. With regard to this latter point, we aim to accelerate our programs to make our organization more market oriented, lean, agile, fast and entrepreneurial," Mr. Dutiné wrote.

The annual savings of EUR 400 million in Consumer Electronics come on top of the EUR 1 billion cost reduction by year-end 2003 resulting from the Philips-wide TOP program ("Towards One Philips") and do not include possible one-time restructuring charges the size of which will have to be decided in the third quarter of 2003.

Philips announced its intention for a business realignment of its Consumer Electronics division to improve time to market and global execution on July 21, 2003 when Mr Rudy Provoost and Mr Frans van Houten, two of the division's top executives, were appointed to the company's Group Management Committee as CEO of Philips Consumer Electronics Global Sales and Services and CEO of Philips Consumer Electronics Business Groups respectively.

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