Polishing the name of Philips
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TalkBackMany of the dominating players, such as IBM and Microsoft, emerged from the U.S. Asia has become synonymous with contract manufacturing, consumer electronics and broadband initiatives. Europe has companies like Nokia and SAP, but also a reputation for bureaucratic tangles.
Frans van Houten, CEO of Philips Semiconductor, wants to change that. In 1996, he headed up Philips' effort to sell recordable CDs and DVDs for video. By 2002, he was running the entire consumer electronics group. (The Philips conglomerate has five divisions: semiconductors, lighting, medical, consumer electronics and domestic products.)
Last year, he took over the company's semiconductor division. The chip group lost money for a number of years, but it rebounded to profitability in the first part of 2004. Subsequently, sales flattened and then-CEO Scott McGregor took off to become CEO of Broadcom. The new plan is to sell bundles of chips under the Nexperia brand to cell phone makers, auto manufacturers and others.
Van Houten spoke with CNET News.com's Michael Kanellos about his plans for streamlining the chip group, the changing nature of consumer electronics and altering the culture inside a large organization.
Why don't you give us the quick update on Philips Semiconductor.
Van Houten: We can do much more with the semiconductor business than its past performance. The semiconductor business is capital intensive, but it's also an R&D-intensive business and we spent over a billion U.S. dollars in R&D. We need to get a return. We owe that to our shareholders, to our board, to anybody, but also it is much more gratifying if we set a strong goal for business growth and so that's what I did.
Many customers think Philips has a great brand, that it's a strong technology company, that it has intellectual property that is attractive, but they want us to deliver faster, to improve our quality of execution and get a bit more focus in place.
My impression of Philips is that it is one of those companies that has great R&D and great ideas...
Van Houten: Yeah, and then we try to be everything to all people.
Exactly, you'll have 8,000 products and I don't know what they do.
Van Houten: 45,000. So I basically started a renewal effort and said we will do it by focusing on four key areas instead of 20. We will simplify our organization and build a so-called highway to the customer, because in the end, I mean, without customers who are we? We may be a proud technology company, but we need revenue. We will execute with much better quality the first time...As products become more complex, nobody wants to have few returns, because it's so expensive.
Where are you starting with the new approach? With the automotive group?
Van Houten: Automotive is kind of leading that. We have a business unit called automotive and identification. That one was very scattered before, yet it makes 18 percent of our sales. We do entertainment solutions for cars. We have a very high market share also here in the United States with, for instance, Delphi. Safety and comfort we do as well: tire pressure devices, airbag devices, the power train in the car, keyless entry systems.
Mobile/personal is 36 percent of our business. Home is around 20 percent. And then automotive is 18 percent and then the multimarket component business (microprocessors) is around 24 percent.
I didn't know mobile was so high, I would have guessed consumer electronics would have been the biggest.
Van Houten: That's what people know us for, but in fact we are the leading supplier of system solutions for mobile phones. My dinky phone, this very successful Samsung D500, which is a hot-selling product in Europe and Asia, is based on the Philips Edge Nexperia integrated solution system platform. Samsung was able to build this product in less than five months because we provide an integrated platform. Soon in the United States we will also have (similar) phones based on our platform.
Do you sell phones under your own name?
Van Houten: Our sister division Philips CE has a modest phone business, which of course we supply to.
Do you ever get in conflicts with potential customers over the fact that you supply chips to Philips, which might be a competitor to them?
Van Houten: Oh, no. Of course, Philips is an internal customer to us. Around 9 percent of my business goes to Philips, so that means 90 percent goes to outside customers. In television, we basically supply to every major brand in the world. Chinese, Japanese, Korean: They all take our system solution for television.
Speaking of TVs, HDTV has finally begun to start taking off in the States? How is it going worldwide?
Van Houten: In the United States it got a big boost because of the mandate of the FCC. We are very proud to have the most cost-effective integrated system for television, (for) which we have now a whole slate of customers. We were actually in Austin (Texas) pitching our products to the famous company there. Europe is going to roll out HD. China and Asia are rolling it out, so we see an acceleration of the HD market.
The big concern, of course, remains content. The Olympics in Beijing are going to be in HD, and the world championship of soccer in Germany next year is going to be in HD digital. I think that will help some sales.
What other consumer applications do you see arriving over the next couple of years?
Van Houten: Well, video is only a step away from photos, right? Many of the portable MP3 players already have stills, so we're waiting
Continued ...
