Philips to Focus on Health to Tap $130 Billion Market

By Elco van Groningen

Royal Philips NV (PHIA)’s plan to sever ties with the lighting business on which it was founded and focus instead on health care pushes the Dutch company into a field increasingly crowded by companies such as Apple Inc. (AAPL)
The Dutch company will combine its remaining health-care and consumer goods businesses to create products catering to consumers who monitor their health and nutrition on their smartphones and other devices, it said yesterday. Lighting, which laid the foundation for Amsterdam-based Philips 123 years ago, no longer fits into that strategy and will become a standalone company.
Chief Executive Officer Frans van Houten is further whittling down a company whose product range once spanned vinyl records, televisions and mobile phones to target a consumer health-care market that’s ballooned to more than
100 billion euros ($130 billion). Philips’ expertise in clinical and hospital applications will help set it apart from companies that focus on fitness-tracking devices, the CEO said.
“We focus on the clinical added value, understanding the disease, helping detect heart failure, advising patients to change their lifestyle and behavior,” Van Houten said on a conference call.

Photographer: Chris Ratcliffe/Bloomberg

Frans van Houten, Chief Executive Officer of Royal Philips NV.

Apple’s fitness-monitoring system HealthKit synchronizes data from various mobile apps, and works as a central dashboard where iPhone users can check their health data. The software will be a major feature of the Apple Watch, when it goes on sale sometime next year. Google’s Fit system also allows consumers to collect and aggregate data from wearable devices and health-related apps.

Apple, Google

“It’s a big market and the addressable market that we are carving out for ourselves is not on a collision course with Google and Apple,” Van Houten said, adding that people are getting older and suffer more from chronic diseases.
The executive said he’s also focusing Philips on health care offerings as consumers will continue to live longer and spend more on medical products and services.
People 60 years or older accounted for 11.7 percent worldwide in 2013, up from 9.2 percent in 1990, according to a United Nations report. The figure is forecast to rise to 21.1 percent by 2050.
Investors are so far backing the idea. Philips rose a second day in Amsterdam trading, up 2.2 percent to 24.85 euros as of 10:54 a.m.
Separating the lighting business to focus on health care is the latest step in a long reorganization as the company tries to focus on more profitable businesses to keep up with competitors such as General Electric Co. (GE) and Siemens AG. The company already sold its television division, the DVD and multimedia units and its semiconductor business.
Combining Philips’ health care and consumer goods will still bring together a wide range of products, from medical scanners, medicine dispensers and alert devices to toothbrushes and breast pumps.
Risky Strategy?
Van Houten said that in the future, parents will be able to check how long their kids brushed their teeth. Another application enables remote insight into whether a patient has taken their medication.
Asked whether ditching several of Philips’ traditional businesses to focus on only two units isn’t a risky strategy, the CEO said he didn’t have another chance in order to speed up growth.
“If you stay with your boat in the harbor, you feel very safe, but you don’t go anywhere,” he said. “But if you go out on the sea and there’s some wind you get speed, it may feel a bit scary, but you get somewhere, you get to a destination.”