Philips Electronics North America Corporation

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Philips Electronics North America Corporation

founded: 1935

Contact Information:

headquarters: 100 e. 42nd st. new york, ny 10017-5699 phone: (212)850-5000 fax: (212)850-5362 toll free: (800)223-1828 url: http://www.us.pna.philips.com

OVERVIEW

Philips Electronics North America is one of the 100 largest manufacturing companies in the United States, best known for the Philips, Philips Magnavox, Marantz, and Norelco consumer brands. Through its major division, Philips Consumer Electronics, it is the second largest supplier of color televisions and VCRs in the United States and the leading marketer of electric razors. Industrial electronics products include industrial X-ray, CD-ROM drives, communication and security systems, dialogue and dictation systems, electronic manufacturing technology, automation systems, interactive media systems, energy-efficient lighting, multimedia presentation equipment, semiconductors and electronic components, and telecommunication systems. The company is among the largest suppliers of computer monitors. Research is conducted at Philips Laboratories in Briarcliff Manor, New York.

COMPANY FINANCES

Philips Electronics North America reported annual sales of $7.0 billion in 1997, an increase of 10 percent over 1996. Royal Philips Electronics, its parent company, reported sales of $37.7 billion in 1997, a decrease of 5 percent over 1996's sales of $39.7 billion. Nevertheless, dividends per share for 1997 were expected to increase by 20 percent.

ANALYSTS' OPINIONS

Many critics have believed the parent company would be better off selling or discontinuing its consumer electronics division. Philips Electronics N.V., however, has given no indication of making such a move. Analysts question other strategic moves, such as the company's decision to undertake no further strategic analysis until 1998.

The failure of Philips's initial foray into the cellular telephone market via Philips Consumer Communications (PCC), a joint venture with Lucent Technologies (60 percent owned by Philips, 40 percent by Lucent) has been attributed to a lack of knowledge of the market. Timing, analysts said, played a key role as well. To launch such innovations at a time when companies like Motorola, Ericsson, and Nokia had saturated the market was considered unwise. When the company hired a former Motorola executive in 1995 to head Philips Consumer Communications, it hoped to finally break even by the end of 1997. At the end of the first quarter of 1998, however, the venture reported a loss of $150 million, and was dead last in a ranking of 1997 worldwide market share in wireless phones compiled by Dataquest Inc.

Potential future growth for the company may lie with the Philips Magnavox Internet television terminal, WebTV. Writing in the July 18, 1997 issue of Forbes, Steve Gelsi described WebTV "as a centerpiece in [Philips'] $10 million TV campaign to relaunch the Philips brand." According to a study, 68 percent of Americans want to tap into the Internet without using a computer. Fifty-six percent of U.S. customers interested in watching WebTV indicated they would order it. Another research firm expressed the firm belief that WebTV could attract 5 million users.

Controversy surrounded Philips Electronics North America over charges of falsified information related to government testing requirements. In 1996 the company agreed to pay $65.3 million in settlement costs. A similar incident had occurred in 1992 when the company admitted to selling resistors and capacitors to the military, which were not up to government code. Philips paid $9 million after pleading guilty to fraudulent activity. Philips stated that these actions were a result of the wrongdoing of a few individuals within the company, rather than a reflection of the company as a whole.

HISTORY

Gerard Philips introduced Philips & Co. in 1891 in Eindhoven, Holland. Anton Philips, Gerard's brother, joined him to help create a prospering company. By the 1900s, the company became Europe's third largest light-bulb manufacturer. The company began constructing plants abroad by the 1930s, including Philips Electronics North America (known then as North American Philips).

Televisions and appliances were added to the company's production lines in the 1950s. Two years later, the company signed an agreement with Matsushita Electronics for technology-licensing operations. Philips began producing the audiocassette, the VCR, and laser disc technology by the 1960s. In 1974, North American Philips purchased Magnavox as well as a small interest in Grundig, a German electronics company, in 1979. GTE Television was purchased by North American Philips in 1981, followed by the purchase of Westinghouse's lighting business in 1983.

Due to slow computer sales, the company sold its Magnavox Electronics Systems unit in the 1990s. The company also sold its interests in Whirlpool and Matsushita Electronics, and in 1997, Grundig. In 1996, Philips and Sony announced plans for a joint effort to license digital video disk (DVD) technology.

FAST FACTS: About Philips Electronics North America Corporation

Ownership: Philips Electronics North America is a subsidiary of Royal Philips Electronics (formerly known as Philips Electronics N.V.), headquartered in the Netherlands. Philips Electronics N.V. is a publicly owned company traded on the New York and Amsterdam Stock Exchanges.

Ticker symbol: PHG

Officers: Michael P. Moakley, Pres. & CEO; William E. Curran, CFO

Employees: 30,000

Principal Subsidiary Companies: Philips Electronics North America's principal product division is Philips Consumer Electronics Co.

Chief Competitors: As a manufacturer of industrial and consumer electronics, semiconductors, diagnostic imaging systems, and a host of other high-tech products, Philips competes with: Canon; Compaq; Gateway 2000; Gillette; Hitachi; IBM; Intel; 3M; Motorola; Nokia; Samsung; Pioneer; SANYO; Sharp; and Sony.

STRATEGY

Philips Electronics North America's strategy is one handed down from its parent company in the Netherlands. A key element of the company's philosophy is marketing. Philips has learned to be patient with new products and has waited for partnerships with other electronic manufacturers to mature before taking a product to market. In other words, all possible facets of a product's future are explored, including making deals with Hollywood studios before releasing a new technology featuring a full-length film on a standard CD-sized disk.

As part of the parent company's strategy to transform Philips from a technology-driven to a market-led organization, the decision was made in 1997 to move the corporate headquarters from Eindhoven to Amsterdam, the nation's capital. Measures were taken to strengthen its Information Technology organization, and to create positive awareness of the Philips brand name. As part of that push, the company upgraded its service support. A five-year contract with U.S.-based SITEL provided tele-services and Internet support over four continents for all Philips consumer products.

INFLUENCES

Philips's marketing focus revolves around its past experience with marketing and investment catastrophes. This strategy evolved after the company, in the United States and abroad, suffered tremendous losses during the 1990s. Two such disasters involved the DCC, a digital tape cassette system, and SRAM memory chips. The company spent $1 million before it abandoned further development of the products. Another marketing failure had been the company's introduction of a device that allowed interactive access of CD-ROMs using a television set instead of a computer. This device, called CD-I, chalked up $1 million in losses for the company.

Along with a new marketing plan, the company had also begun looking to other countries, like China and Japan, for outsourcing—that is, hiring other countries to produce their products. Top executives say part of Philip's comeback had to include careful decision-making regarding which products to outsource.

CHRONOLOGY: Key Dates for Philips Electronics North America Corporation

1891:: Gerard Philips establishes Philips & Co.
1914:: Develops a research laboratory to study chemical and physical phenomena
1925:: Begins experimenting in television
1927:: Begins producing radios
1932:: Sells its one-millionth radio
1939:: Produces its first electric razor
1952:: Signs an agreement with Matsushita Electronics for technology-licensing operations
1959:: Philips, Central Public Utility, and Consolidated Electronics Industries merge and incorporate under Consolidated Electronics
1969:: Consolidated Electronics merges with North American Philips to form North American Philips Corp.
1974:: Acquires Magnavox
1981:: Purchases GTE Television
1983:: Purchases Westinghouse's lighting division
1987:: Philips North America becomes a wholly owned subsidiary of Philips N.V.
1988:: Develops the first demonstration of high definition television (HDTV) for U.S. satellite transmission
1996:: Philips and Sony announce plans for a joint effort to license DVD technology

CURRENT TRENDS

A major goal of Philips Electronics North America is to become one of the top three communication industry leaders in the United States by the year 2000. This goal has led to the production of such innovations by the company as WebTV and Oracle InterOffice e-mail. With the popularity of the Internet on the rise in the mid- to late 1990s, Philips saw potential for growth in customer volume and name-recognition. The Philips Magnavox WebTV was introduced in the summer of 1996. This family addition to the Philips's product line allowed individuals to tap into the Internet using a phone and television. The company had hoped to reach the large numbers of households without Internet access and/or without computers. The strategy targeted a largely computer-illiterate audience as well, those who wanted to experience the Internet without going through computers. The company also installed a built-in device to allow concerned parents to block out inappropriate material from the Internet. Philips teamed up with Sony to develop and market the product. Teaming with Oracle Corp., Philips Electronics introduced Oracle InterOffice e-mail in 1996, with screen phones and a text screen to provide inexpensive, interactive services, that allows users to send and receive e-mail.

PRODUCTS

The company introduced several new products at the 1997 Winter Consumer Electronics Show. The company announced a new production line including digital and analog cellular and cordless phones, corded phones, answering machines, screen phones, pagers, and SIM cards.

A proven success in Europe and Asia, the Fizz Analog mobile phone was brought to the U.S. market by Philips Consumer Communications. This mobile phone, the slimmest and lightest in its class, features 40 hours standby time, 220 minutes of conversation time, and extended battery operation. Philips introduced the Evalia 5600 in 1997 as well. This cordless phone features an answering machine equipped with the newest CT0 multichannel system. Another innovation was the DS 100, an unprecedented system offering battery-operated call waiting display service for Caller ID operations. The DS200 display phone has the same features along with a no-hands speaker phone.

The ADSI-based P200 was introduced by Philips Home Services division. This phone features Internet access with a screen providing interactive operations. Key features include a built-in computing device, high definition display screen, and a Smart Card reader.

The Philips Mobile Computing Group announced the development of the Velo I, a condensed, lightweight, handheld personal computing tool. Other features include a modem, fax-send ability, software adaptability, and user-friendly voice-connected recorder.

The Philips ProScreen 3500 Professional Data/Video Multimedia LCD Projector emerged in 1997 as well. This product allows for direct input from any and all computers for display of VGA, both PC or MAC. This product is the ultimate for users looking for large, full-color, full-resolution data and video display.

Philips Magnavox's DVD400AT Video Player was also introduced that year. Geared for home entertainment, the product features high-quality video previously seen only in movie theaters. Additional features include the product's ability to support many camera angles and various languages and plot varieties. A parental control device, slow motion feature, freeze frame option, two-speed forward scan and reverse feature, title/chapter/track search option, and repeat play modes are additional features.

Philips took two major steps in mid-1998 toward beefing up its high-tech capacity. It acquired ATL Ultrasound (Bothell, Washington), for $800 million, to become a subsidiary of its medical systems division. ATL controls 15 percent of the $2.5-billion annual world market for ultrasound equipment. On the consumer electronic front, the HARRIS/PBS DTV (digital television) Express, a 66-foot traveling road show sponsored by Philips, embarked on a 40-city, 15-month tour, starting in New York City on August 4, 1998, with the aim of allowing the public to experience digital television.

CORPORATE CITIZENSHIP

In 1998, Philips Electronics was awarded the World Environment Center Gold Medal for International Corporate Environmental Achievement. At that time, the company announced the launch of EcoVision, its newest, company-wide environmental initiative. EcoVision set manufacturing targets of 35 percent less waste, 25 percent less use of water, and reductions in emissions. In addition, EcoVision focuses on five areas of product design: weight, hazardous substances, energy use, recycling, and packaging. Under the initiative, each product group at Philips agreed to produce "green" products in 1998, with additional "eco-designed" products to be produced through 2001.

GLOBAL PRESENCE

Philips Electronics N.V. is ranked as the world's third-largest electronics company, behind Sony and Matsushita. Worldwide sales for 1997 were 10 percent higher than in the previous year, with disappointing sales in Latin America attributed to the restrictive credit policy in Brazil. Asia showed above-average growth in sales, especially in components and semiconductors.

SOURCES OF INFORMATION

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For an annual report:

on the internet at: http://www-us.philips.com/finance/results/ar97/pres.htmor telephone: (800)422-2066 or fax: (201)262-2541 or write: transfer and register agent: citibank n.a. equity administration dept., 111 wall st., new york, ny 10043