Reinventing the Philips brand

Glance at the front cover of the Philips annual report for 2001, the year Gerard Kleisterlee took over as chief executive, and you see a Philips flat-screen computer monitor showing the Dutch company's results on a web page.

Look at the cover of the same document for 2007 and it shows a male and female hand clasped together against a blue sky above the slogan "simpler, stronger, better".

The difference illustrates Mr Kleisterlee's efforts to change the Philips brand – from a company that wore its engineering prowess as a badge to one that talks about being "people-centric" and eschews mention of electronics. But it also hints at the radical changes that the man who has spent his entire career at Philips has pushed through.

Mr Kleisterlee, 61, has sold huge swaths of Philips including the volatile semiconductors business that his father ran, the electronic components business and the first part of Philips that he himself headed, a professional audio unit. Philips now has three divisions: healthcare, lighting and "consumer lifestyle", which combines its consumer electronics and domestic appliances businesses.

"Semiconductors was one of the things that in the perception of a lot of people was the thread through Philips – because everybody in Philips used semiconductor platforms," Mr Kleisterlee said in an interview. "We came to the conclusion that the thing that holds everything together is not the fact that we use semiconductors, it's the fact that we have a common mission."

That mission is centred on health and well-being and lies behind its biggest acquisition to date, the €3.6bn ($5.5bn) purchase, completed last week, of Respironics, a medical equipment maker specialising in sleep therapy. While Philips is the number three player after GE and Siemens in medical imaging equipment, Mr Kleisterlee wants to use the fact that Philips is a household brand to get ahead in "bridging the hospital and the home".

So purchases like Respironics, which makes products to treat obstructive sleep apnoea, a condition where patients briefly stop breathing in their sleep, sit alongside Avent, the baby bottle maker that Philips bought in September 2006.

"We span all the distribution angles in the healthcare continuum," Mr Kleisterlee says. "Respironics was at least the completion of the first stage of building home healthcare."

The zeal to change how customers, investors and the media perceive Philips also means Mr Kleisterlee takes a dim view of being referred to as the head of an electronics company.

"Consumer electronics is a very, very small – you could say leftover – part in our lifestyle portfolio," he says. "As far as it does what we want – which is to enhance the lives of people under this heading of health and well-being – that's fine."

It is also the part of the company still providing some headaches. Fierce competition in the US led to a loss of market share and lower sales for Philips consumer electronics in the fourth quarter – a threat to Philips' target of doubling its earnings before interest, tax and amortisation per share by 2010. Mr Kleisterlee has vowed to take "decisive steps" to lift profitability.

He is not ready to say exactly what those steps will be but said the company was looking more closely at where to sell given products.

"In a number of markets where we don't see profit-ability or sufficient profit-ability, for example for a TV or a DVD recorder, we will not desperately try to be on the shelf," he said.

While investors have welcomed Mr Kleisterlee's changes to the company and generally back his assertion that Philips is relatively well positioned to ride out an economic turndown, Mr Kleisterlee acknowledges there is more to do. The share price has dropped from €35 when he became chief executive to €25 today.

"You have to ask yourself, what did I do to create value?" he says, noting he took over at the top of a cycle. "I hope in all fairness and objectivity that by taking the decisions we have taken we have protected a lot of value ... with semiconductors in our portfolio our share price would have been somewhere in the region of €11-€13."

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