IF YOU WANT to know how much the ongoing European financial crisis is hurting companies in the continent, look no further than Koninklijke Philips Electronics NV. Once a dominant consumer electronics giant, the Dutch firm has, over the years, morphed into a diverse group after Japanese and Korean competitors such as Sony and Samsung Electronics drove it to become a niche player in TVs, appliances, DVD and audio players. In recent years, it has made most of its money from medical equipment and lighting.

 

Now, the lights are dimming at Philips. In July, the company announced it had lost €1.3 billion ($2.28 billion) in the April to June quarter after a €1.4 billion write-down on its recent healthcare and lighting acquisitions. On Oct 17, the Dutch firm reported third-quarter net profit of €76 million, down from €524 million a year ago. It also announced it was laying off 4,500 people — in addition to the 6,000 laid off since the onset of the global financial crisis — and is looking to further restructure its businesses.

 

Philips is a textbook case of a strategy gone wrong. Humbled by Asian consumer electronics giants over the past two decades, it had dug in and retreated to its home base of Europe and, to an extent, the US. Asia, the world’s fastest-growing region over the past two decades, was more of an afterthought. You can still find Philips light bulbs in some corners of a supermarket, the odd applian ces such as electric shavers, accessories like headphones and, indeed, even TVs or DVD players in a local Harvey Norman store, but Philips has long ceased to be a mainstream global consumer electronics player.

 

If you compare Philips with its peers — Sony, Samsung and LG Electronics in the consumer space or GE and Siemens in medical equipment — the Dutch company has the lowest reliance on Asia and by far the highest dependence on Europe. Little wonder, then, that as Europe reels and Asia is still humming, Philips is in dire straits.

 

For over a year now, it has been in restructuring mode. It is disposing of its loss-making TV business, expanding dramatically by increasing its exposure in Asia’s medical equipment business, which has long been dominated by GE and Siemens, and leveraging on its lighting technology to grow its new LED lighting business as the world switches to more energy-efficient lighting that also drastically cuts greenhouse-gas emissions.

 

A key plank in that strategy is the proposed sale of its TV business — whose sales are predominantly in Europe, the Middle East and Latin America — to TV and computer-monitor maker, TPV Technology, which is listed on both the Singapore and Hong Kong stock exchanges. A few years ago, Philips outsourced most of it display business and TV manufacturing to TPV. Since last year, the two companies have been talking about the sale of the entire Philips TV business to a TPV-driven joint venture that will design, manufacture and market all Philips TVs. The venture was to have essentially just used the Philips brand name, with TPV doing just about everything else. In April, TPV signed a letter of intent to acquire Philips’ global TV business — excluding that in the US and India — through a 70% joint venture with Philips. “The global TV market has deteriorated, and the sooner we complete (the sale) the better,” CEO Frans van Houten was quoted as saying at the time.

 

The trouble is the TV market has kept on deteriorating globally, and particularly in Europe where most of Philips’ TVs are sold.

 

Not long ago, TV sets were a strong growth business. Newly affluent Chinese, Indians, Indonesians and Brazilians were buying their first sets. Then, there was the move from analog to digital TVs in North America and Europe, so people replaced old sets with new ones as TV stations switched off analog broadcasts and turned entirely digital. There was also the transition to larger flat-screen TVs whose prices dropped dramatically over the last three years. Since last year, there has been a flood of new web-connected Smart TVs as well as 3D TVs, most of which require special glasses.