Philips looks to medical computing
8 July 2005
Philips is planning a big push in medical equipment, including more growth
in healthcare informatics, over the next year.
Chief executive Gerard Kleisterlee has set ambitious sales targets for
the medical division, and has set aside over €3 billion for healthcare
acquisitions. Philips hopes that expanding further into healthcare
technology can off set losses and setbacks suffered by the company's
semiconductor and telecoms divisions.
Kleisterlee has said he plans to increase "substantially" Philips' 2004
revenues of €30 billion by focusing principally on medical systems, small
appliances and lighting. A sales goal of €40 billion "would not be an
absurdity".
The company has recently spent around €5 billion on medical equipment
purchases, which included buying Hewlett-Packard's former patient monitoring
and echocardiography business from Agilent, and Picker's medical imaging
business from Marconi. Medical equipment accounted for 19% of the company's
total sales in 2004, but closer to 30% of its total profits.
Last year, Philips' medical division achieved €5.88 billion in sales,
with 51% coming from North America and 31% from Europe: unlike other Philips
divisions, Medical is strongest in North America thanks to its
Hewlett-Packard legacy. Next year, the company has set the medical division
a target of €10 billion. Part of this will be through the introduction of
new products, such as the new iE33 cardiac ultrasound machine, a development
of HP's Sonos range. But a large part will be through expansion into new
areas, especially medical informatics, through a range of acquisitions.
Kleisterlee, a former boss of the Philips medical division, says he has a
war chest of €3.2 billion for buying medical technology and informatics
companies. But he plans to boost his cash reserves further by selling
Philips holdings in public companies such as Atos Origin and Vivendi.
Philips is one of a number of electronics giants who were advised to get
out of medical equipment and focus instead on fast-growing markets such as
telecoms, the internet and computing by investors and management consultants
at the time of the dot com boom. Philips had a sizeable and long-standing
market position in both fixed-line telephony and mobile communications.
Philips rivals, like GEC-Marconi, Agilent and Hewlett-Packard, heeded these
calls, selling off life sciences and medical businesses to concentrate on
higher profit telecoms and internet businesses. But like fellow European
electronics giants Siemens and Agfa, Philips ignored investors' demands and
did the opposite: buying up medical businesses, expanding its health
informatics portfolio, and retrenching its position in telecoms and mobile
telephony.
While HP and Agilent's businesses have languished, and GEC-Marconi has
spectacularly crashed from being Britain's largest manufacturer to an
inconsequential £400 million minnow, Philips has gone from strength to
strength. As the world's biggest patient monitoring and cardiac imaging
company, Philips is now second only to General Electric in size in the
worldwide medical technology market. Its remaining weaknesses centre around
its semiconductor and mobile phone businesses, and Kleisterlee has vowed to
eliminate losses in these areas and improve returns.
The company expects its future growth to come chiefly from medical
equipment and healthcare computing. But Philips is not just focusing on its
core large systems markets in x-ray, MRI, PACS, ultrasound and patient
monitoring, it's also looking to its experience in health consumer markets
like shavers to help it build a new retail market around consumer healthcare
appliances that merge computing with medical technology. In April the
company announced its Motiva interactive healthcare platform had won a 2005
Medical Design Excellence Award, the industry's top prize for innovation in
medical technology.
Motiva uses broadband technology combined with vital-sign measurement
devices to connect home-based patients to healthcare support teams. It is
designed particularly to help tackle chronic diseases such as congestive
heart failure and diabetes. The system helps patients educational videos,
medication reminders, and personalised messages. It also provides vital sign
trend charts so that patients can track their own progress towards set
health goals. It uses an easy-to-use interactive television interface over a
broadband TV connection, and a remote control specially designed for older
users. Motiva is the result of a collaboration between the company's Design
group in Eindhoven, Holland and Dublin-based company Silicon and Software
Systems.
Recently, Philips' rival and fellow Benelux electronics firm Agfa
announced its intention to become Europe's number one health informatics
company, together with a streamlined EPR product which already has a
dominant position in Europe's largest national healthcare computing market:
Germany. With Philips now focusing on medical equipment and healthcare
informatics, and with an expanding position in the European public sector
ICT market — Philips has also just won the contract for building Germany's
national electronic ID service — Europe's healthcare computing market — so
long dominated by American companies — could now become a battleground
between the continent's own medical equipment giants: Philips, Agfa and
Siemens.
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