Philips Advances in ‘Marathon’ Revamp as CEO Reviews Costs

Royal Philips Electronics NV (PHIA) Chief Executive Officer Frans Van Houten said he’s halfway through a program to make the Dutch manufacturer more responsive and focused on products that Asian rivals won’t undercut in price.

Van Houten, speaking today at the Amsterdam Stock Exchange, said there is little point spending resources on “me-too” products and that Philips must instead focus on high-margin areas such as medical devices or advanced lighting. Changing the culture to make employees embrace his vision will take three years, said Van Houten, who took over in early 2011.

“There is still a lot of work to be done,” the CEO said. “You can compare it to a marathon, and we’re at pole number eight.” Van Houten said the “machine” would run faster toward the end of his program.

Van Houten, a Philips veteran with a track record for turning around underperforming assets, has cut thousands of jobs, parked the unprofitable television unit in an Asian venture and eliminated management layers to accelerate decision- making. Van Houten is exploring the future of a low-margin unit for consumer electronics such as DVD players, and he declined to comment today on the progress of the review.

Philips is the largest maker of lighting equipment, and it competes with Siemens AG (SIE) and General Electric Co. (GE) in the market for health-care equipment such as medical scanners. Its third division, which makes consumer electronics, has shrunk over the years as customers flock to competitors such as Sony Corp. (6758) or Apple Inc. (AAPL) for mobile and music devices.

The CEO’s turnaround effort has started to show results. The company reported third-quarter profit on Oct. 22 that beat analysts’ estimates, with health-care equipment orders rising by at least 10 percent in Europe, while the transition to light- emitting diode or LEDs from incandescent bulbs helped lighting sales rise.

Van Houten aims to save 1.1 billion euros ($1.43 billion) and includes cutting 6,700 jobs. Philips has gained 21 percent so far this year, putting it on track for its best annual stock performance since 2009. Siemens, which reports earnings in a week, has gained 6.2 percent in 2012.

To contact the reporter on this story: Maaike Noordhuis in Amsterdam at mnoordhuis@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net

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