APRIL 2008 W2 ALERT
Philips Waves The White Flag &"Outsources" Their U.S. TV Business
Company Signs Licensing Pact Giving Funai U.S. Market for Philips TV Business
In a move to bolster the profitability of its consumer television business, Royal Philips Electronics (Philips) announced today that it is throwing in the towel and turning over the U.S. market to long time supply partner Funai Electric Co., Ltd. (Funai). The two companies have signed a licensing agreement which will grant Funai all rights to selling Philips (and Magnavox) branded products in the U.S. market for at least a five year period.
Philips’ license agreement is conditioned upon “compliance with Philips requirements on brand use, product quality, product design and provision of consumer care.” Philips says its branded television sales in the U.S. amounted to about 1 billion euros (approx. $1.6 billion).
Some would say that this move, while dramatic, is really not a big surprise. Philips has struggled for years in the U.S. market…often the butt of jokes regarding their marketing prowess…or lack thereof. The highly competitive nature of the U.S. market has made it difficult for second tier manufacturers such as Philips to book profits on sales in this market.
Yet Philips is a global technology player and will retain its TV businesses elsewhere in the world where it has major market share and more profitable operations.
In Philips press release, there were vague comments about other potential “steps to improve the financial performance of its television operations by optimizing its existing global supply base and focusing its TV business…” suggesting perhaps that there are more surprises yet to come.
So…who are these Funai guys, you ask? Funai has been a major OEM manufacturer of a variety of products, primarily video and television, for many years under a variety of brand names such as Sylvania, Symphonic, Emerson, and, of course, Philips and Magnavox (as well as others).
A few years ago, the company made a strategic decision to begin marketing products under the Funai brand name. Known primarily as a supplier of good quality low- and mid-range products, Funai is a significant supplier to companies such as WalMart, who named Funai a Billion Dollar Partner last year.
Philips President and Chief Executive Officer Gerard Kleisterlee said, “The agreement with Funai and the other measures to improve profitability we are planning, follow our commitment that we would take decisive steps in address the unacceptable profitablility levels in our TV business in 2008,”
Funai Electric’s President and Chief Executive Officer Tetsuro Funai added, “As a premium brand, Philips will add lustre to our existing portfolio and consumers can continue to count on the Philips quality, design and innovation to which they have become accustomed.”
To that end, Funai clearly has their work cut out for them. Especially in view of the fact that the company announced a loss of 3.7 billion yen (or approx. $36 million at today’s rate) for fiscal 2007…their first loss since going public in 1999.