It matches the "sense and simplicity" brand and awareness campaign the company is organizing around its products. Second, it implies that the slate is now clean.
The Dutch conglomerate is one of the oldest in the world in electronics. It came out with the compact audio cassette in 1963 and was one of the companies behind the CD in 1983. In the U.S., it sold televisions through the once prevalent Magnavox brand. (The parent company was founded in 1891.)
But the company had trouble keeping up with Asian competitors in the 1990s and early 2000s. Now, after a massive reorganization and rethinking of it position in the world, Philips is rebuilding. Royal Philips Electronics reported net profit of 332 million euros ($401.2 million) for the fourth quarter, above the 224 million euros ($270.7 million) expected by analysts.
Rudy Provoost, CEO of the consumer electronics group, has played a major role in changing the course. He sat down with CNET News.com's Michael Kanellos recently to talk about trimming the product lines at Philips, brushing up the brand, and the Blu-ray vs. HD DVD debate.
Q: How did you end up at Philips?
Provoost: I joined Philips in October 2000 and ran the European consumer electronics business until the middle of 2003. Then, Frans (Van Houten, CEO of Philips Semiconductor) and I became sort of twin brothers because he was in charge of the business creation side and I was part of the execution side (for Philips Consumer Electronics worldwide.)
In the fourth quarter of last year, I became CEO of the Consumer Electronics division worldwide and Frans became CEO of Philips Semiconductor, so we are sort of partners in crime.
Before Philips I worked for Whirlpool for nine years, and before that I was with Canon for five years.
Although Philips has been in electronics for years, it hasn't seen the kind of success in recent years as some of its competitors. What was the situation like when you took over?
Provoost: It was a pretty challenging environment. If you look at the track record of consumer electronics at Philips, it has been a journey of ups and downs and all the time struggling to be profitable.
Two to three years ago, we were running on one cylinder--Europe--and now we are running on all four cylinders and all regions are contributing positively to the results. One of the big challenges was turning around North America.
CE is one-third of the business at Royal Philips Electronics. It is a $10 billion company and Royal Philips Electronics is $30 billion. We want to turn CE into a kind of a consistent profitable business and generate a lot of cash for the company.
What did you do to change it?
Provoost: We had to do a number of things differently. For one thing, we had to articulate the brand in a clear way and differentiate between the Philips brand and the Magnavox brand. In that sense, the sense and simplicity (branding) initiative helped a lot.
No. 2, we very much simplified our business models. We reduced the number of retail customers dramatically, by a factor of five. We were everywhere. We sold everywhere. We were a one-size-fits-all company, and that was generating more complexity and confusion than value. We had to get this process going in North America while keeping Europe going while capitalizing on opportunities in Latin America and, more importantly, Asia.
We reduced the number of SKUs (stock keeping units) by a factor of five.
That, to be honest, is what Philips is known for in the United States, an explosion of SKUs (product models) in a bunch of different categories.
Provoost: Well, I can tell you, it is a SKU implosion now. We had close to 600 (product) SKUs. Now it is below 150. It's innovation too. You need innovation that fits the American road map. You need heavy hitters like Ambilight. (Ambilight adjusts the light on the screen with ambient light to optimize viewing conditions.)
In reality, we are running a business right now that in 2002 and 2003 was two-thirds the size it is today. We were doing that with 1,000 people, and now we do it with 250. It is a pretty significant change. The growth in 2005 in the first nine months was 30 percent.
It's interesting that you're going after Asia. It seems like you'd run into a big feeling of "buy local" in a lot of countries.
Provoost: We partner with a lot of ODMs (original design manufacturers) and OEMs (original equipment manufacturers). If you want to win in Asia, you have to use your global scale and power. Our Ambilight TVs are sold in Asia. In most Asian markets, we are a prominent top three player and often the most prominent foreign brand.
You also have to customize for local markets. We had double-digit growth in Asia for the past three years. Over the next 24 months, we want to bring China to a billion (euro) level. We want to bring India--total Royal Philips Electronics--to a billion level. The nice thing is that the brand is very powerful in Latin America and Asia.
In North America we had to rebuild that equity, which we successfully did. Now it is no longer an awareness game; it is a preference game, and it is a sales conversion game with retailers. This has allowed us to refocus our marketing investments