After 123 years, Philips Corporation is selling off its Philips Lighting division. The Dutch company got its start by making bulbs, though some may say that they were too attached to the original incandescent bulb to remain relevant and profitable. As you have likely noticed in any hardware store, traditional incandescent light bulbs are losing shelf space to more energy efficient LED bulbs.
This trend has had its share of drawbacks and detractors. The major complaint among consumers initially was the higher cost of the LED bulbs. Incandescents are cheaper to produce and far more profitable. With costs that are higher on the production side, naturally, LED bulbs cost more to the consumer as well. The dirty little industry secret is that several upstart LED manufacturers have been willing to sell LED bulbs at a much smaller profit margin than what larger companies could sustain. Philips Lighting Division is just the most recent of the casualties.
Now that LED lighting is very close to mainstream and consumers have realized that the life of the bulbs far exceed that of incandescents, they seem willing to pay the premium. This is bad news for Philips Lighting who still relies on incandescent sales to carry the profitability of that division. In the US, whispers have been around for years that the government could possibly halt the sales of incandescent bulbs altogether even if consumers don’t make them obsolete on their own.
As for the sale of Philips Lighting, that should bring a hefty price tag. An article from Industry Edge from the National Hardware Show quotes the division as being worth about $2.6 billion. The move is part of a transformation that Philips is making to stay relevant in a quickly changing technological world.
“I do appreciate the magnitude of the decision we are taking, but the time is right to take the next strategic step for Philips, as we continue on our transformation,” said Philips CEO Frans van Houten. “Giving independence to our Lighting solutions business will better enable it to expand its global leadership position and venture into adjacent market opportunities.”
According to a Lux Review article last September, “Chinese LED wunderkind Opple Lighting said that it will roll into India where it will mercilessly underprice established brands like Philips and Havells.”
If Philips can be blamed for not having the foresight to stay ahead of the lighting game in LED, it seems that corporately they’re willing to cut their losses and look for opportunities that will continue their legacy that goes back over a century. Considering the aggressive nature of Opple’s expansion, Philips may just be indicating that they’re not going to play that kind of game.
Originally, it looked like Philips would simply make the Philips Lighting division independent of the parent company through a new IPO (initial public offering) or hand it over to its stockholders. Now it seems they are willing to let it go to the highest bidder. Philips does have some cutting edge technology in the LED world that would make it an attractive option for a buyer with the mindset to really run with it. They also use products from the Philips Lighting division in many of their consumer products, which means that they will likely want to continue to have a minor ownership stake.
Bidding should end soon, and it is likely that the new owner will be able to keep the Philips name.