Citing falling consumer prices and declining margins, Royal Philips Electronics NV will relinquish control of its 80-year old television unit to an Asian contract manufacturer.
Philips said it would bundle its TVs, which the Amsterdam-based company first produced in 1928, into a partnership that will be 70 percent owned by Hong-Kong-based TPV Technology Ltd. Philips will retain the remainder of ownership and will receive royalty payments of at least $72 million annually from 2013 onwards.
Philips' new CEO, Frans van Houten, who began work this month, said a simple "tweak" would not stem years of losses, which were dragging down overall company earnings.
Ridding itself of the television business accelerates a transformation of the Dutch company in the past decade from a diversified conglomerate into a manufacturer of lighting, health care products and consumer electronics including toothbrushes and electric shavers. Philips sold its camera, routing, switching, telecine and systems integration businesses (to then Thomson Multimedia) in 2000, and sold a majority stake in a personal computer monitor business to TPV for about $358 million in 2004, sold its semiconductor business to three equity firms in 2006, and got out of mobile phones.
Van Houten had made fixing the TV division, which employs about 4000 people, his number one priority going into his new job. Heading for its fifth consecutive annual loss, the television subsidiary has suffered as LG, Panasonic, Samsung and Sony have all cut prices to compete with local Chinese suppliers.
Philips was among the last remaining mass-market producers of televisions in Europe, a niche now largely occupied by luxury manufacturer including Loewe AG of Germany and Bang & Olufsen AS from Denmark.
As part of the transaction, Philips has an option to sell the remaining 30 percent share in the joint venture any time after the sixth anniversary of the date of the completion. All 4000 employees will move to the venture with TPV when the deal is completed, said Shane Tyau, director of corporate finance at TPV.