Eindhoven, Netherlands -- Philips Components International has morphed away from passives and batteries to such a degree that the group is thinking of switching to a more high-tech name.
The division of Royal Philips Electronics N.V. has cast its future with "emerging electronics" for handheld devices, multifunction displays, and Internet connectivity for consumer appliances and automotive electronics.
While the metamorphosis is still being worked out, the components group is already besting its year-ago sales and profits after divesting virtually all of its conventional passives business. The unit's goals include maintaining a competitive technology edge while keeping manufacturing costs down by shifting some plants to low-wage regions of the world.
Gerard Kleisterlee, president and chief executive of Philips Components, conceded during an interview in his office that transforming a former routine parts supplier into a high-tech leader is a formidable challenge. Some rivals and analysts still ponder whether the previously stodgy, old-line vendor can make such a complete break with its past.
Yet there are signs the group is moving resolutely to defy skeptics. Philips Components is considering a new name to better reflect its high-technology thrust, which is perhaps most clearly on display at its Emerging Electronics Solutions unit. That division was created barely three months ago to champion the company's move into new markets, Kleisterlee said.
Instead of a potpourri of commodity chips, the reinvented group wants to offer advanced modules and assembled subsystems to its OEM clients. It is in the process of divesting its last passives remnant-ceramic capacitors-in a yet-to-be-finalized plan.
"We were in fairly mature businesses with a big stretch of portfolio to support and no clear image of the whole picture," Kleisterlee said. "We've brought focus back into our portfolio, rebalanced the product mix, divested part of our passives business, and become more and more a supplier of assembled products."
The changes Philips Components is initiating are not limited to that division, however. Other units of the parent company, including Philips Semiconductor, are similarly re-evaluating their operations in response to the changing marketplace. Both the components and the semiconductor divisions, for instance, are known to have separately introduced a sales structure that operates on a global basis to replace the previous regional system. Kleisterlee said his division now has "businesses with strategies that are more similar and a common ERP system."
To ensure the success of its makeover, the Philips unit this year will double its capital spending to about $600 million and explore acquisition opportunities, Kleisterlee said.
"They are in substantially better shape, although they're a bit late in the [reorganization] cycle," said Peter Knox, an analyst at Commerzbank Global Equities, London. "They're moving into new areas where they could leverage considerable experience in their core businesses."
This kind of positive endorsement does not alter the fact that Philips Components still gets about half of its $5.1 billion annual revenue from the sale of CRTs. And Kleisterlee expects the venerable CRT business to remain a significant revenue contributor for the next decade. Another 20% of sales comes from the FDS division, which has a joint venture in Korea with LG Electronics Co. Ltd., called LG.Philips LCD.
Meanwhile, the Emerging Electronic Solutions unit represents an effort by Philips Components to break the dependence on a single unit for a large chunk of its revenue. Plans for the new unit include packaging display, wireless, and storage technologies for next-generation handheld devices, among other new products. This would involve Philips Components making its own flash-memory cards for a range of new handheld electronics coming to market.
That grand vision may be challenged, however, by the fact that Philips will have to acquire flash chips on the open market to integrate into its planned memory cards-joining the growing fray for short supplies of flash ICs.
In the FPD market, Philips Components is lining up an array of new choices for handheld devices-from workhorse passive- and active-matrix LCDs to new polymer-LED and liquid-crystal-on-silicon (LcoS) panels.
In the driver's seat of that campaign is the San Jose-based FDS unit. The unit plans to sample multicolor polymer-LED flat panels by the end of the year and begin full-color-panel production by 2004 in Heerlen, just outside Maastricht in the Netherlands.
Ronald Schimanofsky, marketing manager for the multicolor-panel operation, said Philips was making monochrome poly-LED panels at the Heerlen plant, but is now betting that the addition of Internet accessibility to handheld devices will spur demand for color screens. Color poly-LEDs also would have a lower production cost and lower power consumption than conventional LCDs used in handheld display products, he added.
Poly-LED panels also use passive-matrix addressing, which Schimanofsky said is adequate for current handheld applications. Meanwhile, the company is developing an active-matrix panel that Schimanofsky said could increase performance. Philips will qualify the active-matrix device this year and start production in 2001, he said.
Small poly-LED panels are only one of several technology options Philips is selling to the handheld-device, automotive-dashboard, and entertainment markets. The company is also marketing passive- and active-LCD panels and is developing LcoS for many of the same applications.
Additionally, Philips is planning to convert its fabs in Japan-a majority-owned joint venture with Hosiden-from producing AM-LCD panels for notebook PCs to smaller displays for handhelds, according to Gary Thomas, senior vice president and chief technical officer at Philips FDS.
The market for many of these products is untested, although this doesn't bother Philips Components' executives. The company has been working closely with a handful of its major OEM customers to ensure smooth adoption by companies such as Palm Inc., they said. The executives added that the new Philips Components is not afraid to pull the plug on any venture not considered viable, including joint ventures.
The company recently ended two flat-panel joint ventures-one with Sony Corp. and Sharp Electronics Corp., and the other with Pioneer Electronic Corp.-that were aimed at developing large plasma-display panels (PDPs) for the TV market. Kleisterlee said both development contracts expired last year and Philips did not believe the market was ready for production-volume PDPs.
"We're continuing PDP development on our own, and expect to have prototype panels available when the market is ready," he said.
Meanwhile, Philips Components' FDS unit is exploring how to integrate into its displays next-generation features such as voice commands, identification security, video control, and driver ICs. The company plans to display a PCMCIA card with a fingerprint AM-LCD sensor for laptop security and encryption at the Society of Information Display symposium next month, said Gary Thomas, Philips Components' chief technology officer.
Whatever the outcome of these strategic moves, the name change Philips Components' is considering-if carried out-will complete the company's metamorphosis into an institution that some older employees may not recognize in a few years.
"If we look in the mirror, we realize that in many respects, Philips is still a conservative company," Kleisterlee said. "The change is building, however, and everybody is excited about that."