Royal Philips Electronics (AEX: PHI, NYSE:PHG) today disclosed its plans for the restructuring of its Optical Storage business, and confirmed its expectation that the business’ losses will be eliminated within two quarters. Philips announced in October that following the dissolution of the Components division, a comprehensive restructuring plan would be carried out to bring Philips Optical Storage (POS) back to profitability. Philips Optical Storage was responsible for more than half of the losses, excluding special charges, of the entire Components division, with its data storage line the main source of the problems as a result of intense competition and a weak PC market.
The major part of the restructuring will see the PC related (Data) business line concentrated in Taiwan. Approximately 390 employees in Hasselt, Belgium, will be affected by the move, approximately 45 of who will be offered positions at other sites within POS. The present POS group in Eindhoven will be strengthened to concentrate on the pre-development activities of the POS business. Workers councils and union representatives have been informed and Philips will provide all possible support in assisting affected employees to find other employment within or outside the company.
The Taiwanese relocation will allow Philips to focus on its DVD+RW development activities and further cooperation with local and regional partners. Philips will use its strengths in research and development to continue its leadership in new product innovation and establishing standards. Manufacturing will increasingly be done through partnerships. The turnaround of POS Data will be achieved by eliminating unprofitable product lines based on more mature technologies, focusing on DVD+RW where margins are profitable and improving as the standard becomes established, and at the same time significantly reducing fixed costs.
“We have found a course of action for Philips Optical Storage which will both put a stop to the losses on our stated time frame of two quarters, and allows the business to concentrate on the areas where it can add the most value - innovating and defining and establishing new standards for data storage,” commented Arthur van der Poel, Executive Vice President and member of Philips’ Board of Management. “This focus will ensure the maximum synergies with related businesses in Philips, leaving manufacturing and certain other activities to our partners, with key competences in these areas. As we have said, a successful turnaround for POS will provide the basis to bring the former Components businesses back into the black for the full year 2003.”
By strengthening its position in DVD+RW applications and new or emerging standards, Philips will remain a leading player in the OEM and aftermarket optical storage industry with a solid basis for sustained profitability. Geographically, the innovation and long-term development will take place in Europe while the ongoing Data business operations will be centered in Asia. Philips will establish its business headquarters for the PC related Optical Storage business in Taiwan in the course of 2003.
Besides the Data business, the consumer and automotive business lines of Philips Optical Storage are profitable and developing according to plan. The consumer line is a leader in the audio/video market and supplies drives for applications including DVD Recorders (based on the DVD+RW standard) and games consoles.