The Complex Task of Simplicity

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If only attracting attention to consumer electronics were that simple. Fact is, for Philips to hit its ambitious growth targets, the company must take on the trickier challenges inherent in the new consumer-lifestyle business--like defining the category. "This notion of the consumer-electronics company," Kleisterlee says, is "of the past." These days, state of mind and body are increasingly what matters, Philips reckons. And both will influence shoppers' behavior to a greater degree. So for lifestyle, read products "that cater for those consumers interested in health and well-being." Take your alarm clock, for one. Instead of a loud buzzer jolting you out of bed, Philips wants to sell you a wake-up light that mimics a sunrise in slowly coaxing you out of slumber. Consumer lifestyle means going beyond "just a company that does flat-screen TVs," Kleisterlee says.

Yet neither consumers nor competitors, damn them, are obligated to think that way, especially when it comes to big-ticket items like TVs. Philips' LCD-TV business is losing money in the insanely competitive U.S. market, under pressure from the likes of Sony and Samsung. Globally, profit margins in the $15 billion consumer-electronics business are flat-screen thin. With TVs accounting for about 60% of sales at the former CE division, "if you look at [Philips'] strategic targets--stable growth and higher profitability," says SNS Securities' analyst Victor Bareño, "then the core business of consumer electronics is not really a good fit."

Philips says it will differentiate its products through lifestyle-driven innovation. On that score, it's enjoying greater success. In 2006, 53% of group sales came from products launched in the previous three years. That's more than double the level of 2003. Last March, for instance, Philips--in partnership with Swarovski--launched the Active Crystals line, turning high-tech devices like memory sticks into high fashion. New items like that have helped triple sales at Philips' accessories unit in the past three years. "I've said many times, consumer electronics should be a lifestyle business; it should be a fashion business," says Rudy Provoost, the former CEO of Consumer Electronics who is set to run the lighting division starting in April. "There's too much electronics in consumer electronics and not enough consumer."

With the heaviest lifting behind it, Philips needs to address its underperforming share price: the stock has slid 20% on the Amsterdam bourse since July. Citigroup analysts are bullish, however, calling Philips "a growth company masquerading as a restructuring story." Whatever happens, Philips has faced tougher times. Just a short drive across town from the Eindhoven plant, you can visit the company's first factory, where beginning in 1891 it manufactured incandescent lightbulbs for ships and hotels. Back then, the company needed to churn out 500 each day to turn a profit. At the start, it could manage only 400. In case Van Deursen needs any encouragement: things have a habit of getting simpler.