Philips spins off lighting components businesses

Philips is to merge its lighting components businesses into a separate unit worth up to €2 billion which may be listed – a major step in its ongoing strategy to refocus on healthcare and high-end lighting systems.

Under chief executive Frans van Houten, the Dutch company is reinventing itself after its TV, audio and video businesses struggled for years to compete with low-cost Asian rivals and prompted a spate of profit warnings at the firm. It has sold off its television business, cut more than 5,000 jobs and concentrated on growing its healthcare products.

Now Philips – which started out 120 years ago as a pioneer in electric lighting – wants to narrow its focus in that area too, to large, complex lighting systems rather than light-emitting diodes (LEDs), under pressure from a severe price war.

The LEDs market is booming as the world switches from incandescent light bulbs, now banned in most places, to more efficient and durable lights.

However a price war for LED bulbs is hurting profits, leaving Philips and German rival Osram – spun off from its parent company Siemens last July – scrambling to develop new technology and seek out new market segments.

By spinning off its Lumileds and its automotive lighting businesses – which had combined sales of €1.4 billion last year – Philips said the unit would be better placed to compete for new business from outside customers who currently regarded the group as a competitor.

It also said it would look for outside equity or debt investors into the new business, with an initial public offering one of the options. Analysts said it was a smart move that would make Philips a more manageable and profitable business.

Osram, which analysts say is weaker than Philips’s new division in the field of LED lighting, has performed strongly since being spun off. Its shares have gained nearly 50 per cent during a period when the German mid-cap index rose only 21 per cent. – (Reuters)