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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