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The Rise and Fall of Philips Electronics: A Journey Through Innovation and Adversity

The Rise and Fall of Philips Electronics

The state of Philips Electronics

Remember Philips Electronics? Well, you probably do because your light bulbs, electric toothbrushes, and shaving blades likely still carry the Philips branding. But remember when Philips was a leading electronics company like Sony and Panasonic?

They were crushing it with TVs, speakers, cassette players, radios, and a bunch of common everyday electronics. In fact, Philips Electronics used to be one of the largest electronics companies in the world back in the late 1900s. But since then, things have taken a turn for the worse. Within just the past 15 years, Philips’ revenue has fallen from over $30 billion to less than $20 billion.

Throughout the entire time, Philips’ net income has been more or less just breakeven as Philips slowly bleeds market share in industry after industry. Their stock actually did relatively well during the pandemic boom, but since then, it too has fallen back to reality crashing nearly 80%. Today, Philips Electronics has fallen all the way down to number 36 when it comes to the world’s largest electronics companies, but Philips wouldn’t want you referring to them as an electronics company.

In fact, in 2013, Philips Electronics purposely dropped the word “Electronics” from their name as they admitted defeat and signaled a new focus for the company. It’s not like things have been going much better for Philips outside of electronics either though. At this point, Philips doesn’t even make much of the stuff that they sell themselves and I don’t just mean from an outsourcing perspective.

No, Philips has literally sold off many of their most iconic businesses altogether.

For example, in 2021, Philips sold their appliance business to a Chinese private equity firm for $5.2 billion. So, whenever you see a Philips-branded refrigerator, washing machine, coffee maker, or air fryer, know that Philips has nothing to do with it. It’s actually operated by some Chinese investment firm that bought the rights to the Philips branding.

So, here’s the rise and fall of one of the most iconic electronics companies of all time: Philips.

Monopolistic practices

Taking a look back, the story of Philips dates all the way back to 1891 to a Dutch man named Gerard Philips. Gerard was from a pretty well-off family. His father, Frederik Philips was an established banker, and fun fact, he was actually first cousins with Karl Marx of all people. The Philips family wasn’t big believers in Marxism though, as they were about to become some of the worst parts of capitalism.

In 1891, Frederik would help Gerard start a business by financing the purchase of an empty factory building in Eindhoven. The first products that came out of this factory were carbon filament lamps, something that Philips is still known for 130 years later: lighting. Things weren’t going so well back then either as the factory was constantly on the brink of bankruptcy.

In an effort to turn around the company, Gerard would recruit his younger brother of 16 years, Anton, to join the company and this was really the turning point for Philips. By trade, Anton was an engineer but he was also a natural businessman. He would pivot the company from focusing on lamps to focusing on light bulbs and he would also come up with creative ways to leverage the boycott of German goods throughout World War I to promote Philips.

Likely his most effective but also most anti-consumer strategy came in 1924 when he helped found the Phoebus cartel. If you’re not familiar with the Phoebus cartel, this was the origin of planned obsolescence. You see, light bulb technology was advancing rapidly going from just a few hundred hours to over 1,000 hours to 2,500 hours. As such, light bulb producers like Philips started to become concerned that light bulbs would soon last “forever” meaning far less light bulb sales.

So, Philips, GE, and a few other lighting giants got together in Geneva, Switzerland in 1925 and decided to artificially limit light bulb technology. They all agreed that they wouldn’t produce light bulbs that lasted more than 1,000 hours so that consumers would have to buy light bulbs more frequently.

This arrangement was supposed to last 30 years, but it would come to an end during World War II, 14 years later. These 14 years, however, were plenty of time to establish a light bulb oligopoly, jack up prices, and permanently change the fabric of how companies controlled markets.

But while the Phoebus cartel was a great success, this would also turn into Philips’ number one disadvantage. Philips would get into a terrible habit of trying to control markets through brute force and monopolistic practices and this wouldn’t always work out as was the case with DVDs.

You see, by the late 1900s, Philips would become a cassette giant and they were ahead on CD and DVD technology as well. But, they shied away from launching CD and DVD products because they didn’t want to cannibalize their cassette business. The industry didn’t wait around for Philips though. Sony and Toshiba were quite interested in popularizing DVDs and more specifically their own DVD standards, and pretty soon, Philips got left behind in the dust, and that’s just one example.

In general, Philips tried to control markets using cunning business strategies instead of just out-innovating the competition. This strategy worked when the competition also just wanted to lay back and operate an oligopoly. But when the competition was interested in pushing things forward, Philips rarely kept up.

Missed opportunities

Philips didn’t just stick to making light bulbs forever. They would expand into dozens and dozens of industries. In 1920, they started manufacturing vacuum tubes. In 1927, they would pioneer the radio industry. In the early 1930s, they would popularize generators.

In 1939, they would introduce their famous Norelco shavers, and then World War II hit. Germany would go on a rampage taking over entire countries and all of their companies and resources, and one of the affected countries was of course the Netherlands. Seeing the rise of Germany, the Philips family kind of knew that this was a possibility and were prepared for exactly this.

Just one day before Germany invaded the Netherlands, on May 9, 1940, the Philips family cashed out the company’s resources and fled to the US. From there, they would open up the North American Philips Company and miraculously, they would survive the war, and they would return to the Netherlands would a new vigor.

In 1949, they began selling TVs. In 1950, they entered the records industry. In 1954, they expanded to South America. In 1963, they single-handedly pioneered the audio cassette industry. And in 1972, they single-handedly pioneered the video cassette industry. But with each and every one of these successes, Philips was losing a bit of their edge.

They were becoming a bit more arrogant and a little less careful as they felt that they were on top of the world. And if you ask any business leader, you know that the moment you start thinking this way is the moment you get screwed, and that’s exactly what happened with Philips and the chip industry.

You could say that Philips basically pulled a Xerox within the chip industry. What do I mean by that? Well, Xerox is infamous for pioneering the computing age and then throwing it all away. Xerox’s legendary Palo Alto Research Center is where many of our modern technological marvels came from including the computer, graphical user interfaces, laptops, ethernet, laser printers, and a bunch of other stuff.

In fact, Steve Jobs gave Xerox 5-8% of Apple for a million dollars just to get access to their research center. But, Xerox didn’t even hold onto their Apple stake till IPO the very next year much less their lead within the computing space. If you think Xerox was braindead for throwing away the computing industry, well Philips would do the exact same thing with the chip industry.

You see, ASML Europe’s largest tech company clocking in at $360 billion, was basically just a backyard project for Philips, and I don’t mean that metaphorically. ASML was literally started in a leaky shed next to the Philips office in Eindhoven. And today, ASML is the go-to player when it comes to building machines that can build chips. But Philips sold off their entire stake in the company by the turn of the century.

And funnily enough, ASML wasn’t the only multi-hundred billion chip company that Philips gave away as they also gave away TSMC. Philips was not only TSMC’s first investor but also their lifeline when it came to credibility within the chip industry. And in return, TSMC would give Philips a 27.5 percent stake in TSMC.

Philips, however, would sell off all these shares by 2008. For perspective, TSMC stock has 13xed since then and TSMC is now a top 10 company worth over $700 billion. All Philips had to do to stay one of the largest electronics companies in the world was hold onto their ASML and TSMC stake which they very much earned given their involvement in these companies. But instead, Philips pulled a Xerox

Giving up

Philips faced a series of challenges in the 2000s that led to significant changes in its business strategy. Initially known for its monopolistic practices and a sense of complacency, Philips took a decisive turn by gradually divesting its subsidiaries and investments. This strategic shift marked a deliberate move away from its traditional strengths in electronics.

The company even removed “Electronics” from its corporate identity, signaling a definitive end to its focus on that sector.

Instead, Philips redirected its efforts towards the healthcare industry, recognizing the sector’s promising growth prospects, especially with the aging population in Western countries. The healthcare industry offered Philips advantages that the tech sector did not, notably stringent market regulations.

Despite the formidable barriers to entry, including high capital requirements and regulatory complexities, Philips leveraged its financial resources, regulatory expertise, and established networks to establish a foothold. The company capitalized on its existing brand recognition and credibility among consumers, particularly in medical settings.

In contrast to the fast-paced and competitive tech industry, the healthcare sector moves more slowly, allowing Philips ample time to adapt and innovate. This strategic pivot acknowledged Philips’ limitations in defending its position against agile tech startups. Instead of prolonging a futile battle, Philips made a mature decision to pivot towards a sector where its strengths could be better leveraged.

Despite its departure from the tech arena, Philips found a solid footing as a prominent provider of healthcare electronics, positioning itself for sustained growth and stability in the years ahead. Nevertheless, the shift marks a significant departure from Philips’ earlier role as a leader in the tech industry, underscoring the profound changes the company underwent during this period.

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