From Lighting to Delighting
Embracing the irreversible transition from incandescent light bulbs to LEDs, Philips secured itself an excellent position by buying up a number of leading players in the lighting industry.
From Lighting to DelightingBy Fuyuan Hsiao
From CommonWealth Magazine (vol. 423 )
The train pulls out of Amsterdam, and soon a landscape of canals, windmills, fields and dairy cows is flying by.
After a 90-minute drive the train slowly chugs into Eindhoven station. More than a century ago, Royal Philips Electronics produced its first light bulb in a small factory in this Dutch town, which grew to be the fifth largest city of the Netherlands.
Without Philips, today the world's largest lighting manufacturer, Eindhoven would never have made itself a name as a high-tech city. Today the site of the decommissioned Philips light bulb factory has been transformed into the Science Park Eindhoven.
Nowadays, Eindhoven attracts one third of Dutch R&D investment.
Light floods in through a glass curtain suspended from the ceiling at the Philips Lighting Application Center inside the park. Every year more than 13,000 professionals in the global lighting industry visit the center. Bathed in warm white LED light, the freshly brewed coffee at the center smells even more mellow and aromatic.
Customer consultant H.C.M. Taks, who has worked at Philips for 20 years, waves the remote of his PDA like a magic wand, and suddenly LED lights in hundreds of colors dance around the room like images in a kaleidoscope. The center features a broad array of lighting designs and applications to present hotel foyers, bars, hotel rooms, supermarkets, fresh food displays and department store windows in their best light. All the shine and sparkle foretells a future in which humanity will live illuminated by LEDs.
From an entrepreneurial perspective, massive investment in lighting as a core industry does not seem sensible for a company like Philips, which is known to calculate carefully and budget strictly. Just 27 percent of the group's revenue stems from lighting, and its earnings before interest and tax (EBIT) are the lowest among the concern's three main business segments – healthcare, lighting and consumer electronics. Yet the lighting division employs half of the group's 116,000 staff.
Of course, Philips started out with lighting.
And Philips Lighting has all along maintained its leading global position steady as a rock. Around the world 65 percent of airports, 30 percent of hospitals and offices, and 55 percent of soccer stadiums are illuminated by Philips light bulbs at the press of a switch.
However, Philips has set its eyes on the future LED lighting market, which is expected to be worth billions of dollars.
Eying the Rapidly Growing LED Market
On the road to his office at the Philips headquarters in Amsterdam, Gottfried Dutine, the company's executive vice president, predicts that the LED lighting market will grow 30 percent annually for the next ten years. Next year the market will have grown to 1.5 billion euros from 700 million euros two years ago.
In contrast to other industries which face an uncertain future in these times of complex industrial and economic changes, the prospects for LEDs are clearly more predictable.
Three years ago Philips correctly perceived the major trend toward the replacement of incandescent bulbs, and decided to completely shift to energy-saving lighting solutions. Today 53 percent of the Lighting Division's revenue comes from energy-saving "green" light bulbs.
When building its LED business, Philips made its entrance downstream, skipping distributors and instead directly making contacts with commercial clients and end consumers.
In explaining the Philips strategy, Albert Zomer, head of marketing at Business Unit Luminaires Europe, points out that the company developed its LED lighting business in two major directions. The first was entering the light fixtures market to directly grab the consumer market. The second was zeroing in on energy-saving light bulbs, continuing to improve the energy-saving capabilities of existing light bulbs, and vigorously developing LED light bulbs.
Key Strategy: Buying Up the Entire Value Chain
Within the past four years Philips has acquired more than 11 companies. Today the group does not lack a single link in the lighting value chain, from upstream microchips to midstream illuminants and downstream light fixtures, from lighting design to manufacturing, technology, applications and patents. Philips has brought the leading names in the industry into its fold as part of its global expansion. These include Partners in Lighting (PLI), Europe's largest maker of light fixtures; Genlyte, the largest maker or light fixtures in North America; Color Kinetics, a major U.S. LED lighting manufacturer; and Lumileds Lighting, a leading U.S. manufacturer of high-efficacy white LEDs.
Edward Po, general manager of Philips Taiwan Ltd. – Lighting Division, reveals that Philips sold off all non-core business over the past few years, while buying up LED manufacturers, because headquarters believes that sooner or later all incandescent bulbs will have been replaced so that light fixtures and lighting applications will become the market mainstream. Consequently, the company devoted a huge amount of capital to buying up light fixture makers as a platform for getting into different applications in the future.
Last year Philips bought Genlyte for US$270 million, the largest acquisition in the company's history, because of the importance it places on office, outdoor and other professional lighting in consumer applications.
"When there is a big change, you'd better be quick and decisive," says Allard Bijlsma, who used to work in the consumer electronics division, but last year became CEO of Philips Consumer Luminaires.
He compares the switch from incandescent lamps to LED lights to the transition from analog to digital computing. Bijlsma argues that this change is bound to happen sooner or later, which means that the earlier companies get ready, the better their chances to seize this market.
"Philips has the whole value chain," Bijlsma declares with a confident gleam in his eyes. "If we cannot do it, who can do it?"
Having just finished a four-hour mammoth conference directly after returning from an overseas business trip, Bijlsma continues to analyze the Philips strategy. In the past the company only catered to the light bulb market, but did not have a foot in the consumer lighting market. Now is the best opportunity to move in, he argues.
LED technology allows integrating the light source with the fixture, opening up many new design opportunities. Living Colors, for instance, a novel LED lamp that Philips released last year, has a range of 16 million possible colors that can be readily changed, adjusted in intensity, and dimmed via a dial remote control. Half a year after the lamp, which comes with a price tag of 150 euros, hit the market, more than 1 million had been sold.
From Light to Delight
With its entry into LED lighting, Philips developed many new applications that turn light into more than a mere illuminant.
Light is no longer limited to brightening our surroundings. Intelligent lighting also serves many other functions – playing important roles in medical therapy and diagnostics, creating ambiances, and marketing cities.
Besides physicists with knowledge of optoelectronics, experts from many different fields work at the Philips Industrial Design Center, including psychologists, anthropologists and social scientists, all doing research on people's psychological and biological needs as they relate to lighting.
A survey in Germany, for instance, revealed that 79 percent of German teachers retire early because of job exhaustion. Therefore, Philips designed a special LED lamp for classrooms and offices that helps reduce teachers' fatigue.
Philips has designed magnetic resonance imaging (MRI) equipment with its own LED lighting that makes patients feel more at ease during medical examinations. The company has even designed a lamp that changes hues to match any color you show its built-in sensor.
"Lighting will become a delighting people business," Zomer predicts with a chuckle.
With Philips churning out one new LED application after another, the company will probably soon be better known as a dominant maker of popular and trendy products than as a lighting manufacturer.
Translated from the Chinese by Susanne Ganz
Philips Company Profile
In 1891, by brothers Anton and Gerard Philips as an exclusive maker of incandescent light bulbs
CEO: Gerard Kleisterlee
Headquarters: Eindhoven, Netherlands
2008 revenue: 26.5 billion euros (including 7.1 billion euros from Lighting Division)
Worldwide workforce: 116,000 employees (including 57,000 in the lighting business)
Business Divisions: Lighting devices (No. 1 worldwide), healthcare (No.1 worldwide) and consumer electronics
Chinese Version: 要成為讓人愉快的生意