Philips 2004 Annual Report Download - page 33

Philips DAP strives to win consumers by offering them exciting
products that meet their need for home management and personal
wellness, thus achieving and consolidating leadership in its target
markets through its brands. At the same time, the division is
constantly pursuing breakthrough concepts to accelerate growth
and further improving its operational performance, e.g. through
asset management and product diversity reduction.
Philips DAP sales to third parties on a geographic basis:
(in millions of euros) 2002 2003 2004
Europe and Africa 1,221 1,201 1,174
North America 576 524 456
Latin America 97 87 96
Asia Pacific 379 319 318
2,273 2,131 2,044
The division employs over 8,200 employees worldwide.
The Philips DAP business is seasonal, with very strong sales in the
second (Mother’s and Father’s Day) and fourth quarters
(Christmas and year-end holidays).
Philips DAP mainly purchases components and materials from its
suppliers in the regions where manufacturing centers are located,
being Europe, North America, Latin America and Asia Pacific.
However, some key components (e.g. chargers, adaptors, DC
motors) are sourced globally. The raw materials required to
produce the components are directly acquired by the respective
suppliers. Exceptions to this are the plastic resins, where Philips is
in charge of global sourcing and negotiation.
Philips DAP buys the great majority of the components needed for
the manufacture of its products from third parties. In order to
reduce the risks and exposure in this area, Philips’ normal practice
is to have at least two sources for the majority of components. In
addition, this practice enables the acquisition of components at
competitive market prices. In a limited number of cases there is a
dependence on a single source of components due to a unique
differentiating technology for product performance and/or cost. In
such cases, Philips generally decides to enter into a partnership
agreement in addition to supply agreements.
The basis of DAP’s commercial approach is to work with retailers
and distributors operating locally and across a region, who wish to
grow with Philips whilst furthering Philips’ brand values and
commercial principles.
Retail trade and wholesalers form the typical sales channel to
consumer end-users.
Due to the nature of its business, Philips DAP is required to make
use of a broad span of distribution routes, e.g. mass merchants
such as hypermarkets and discount outlets as well as specialist
chains, department stores and mail-order companies.
Philips DAP relies on a number of key patents across all its
businesses to protect its technological innovation and uses them
to defend its differentiated market position.
Consumer Electronics
Philips Consumer Electronics (CE) is a global leader in Connected
Displays, Home Entertainment Networks and Mobile
Infotainment. The division’s product range includes: TV products
such as Flat TV (LCD, Plasma), conventional TV and projection
TV; video products such as Home Theater in a Box (HTiB), DVD,
DVD+RW, VCR and TV-VCR; audio systems, separates and
portables; LCD and CRT computer monitors; mobile phones and
cordless digital phones; set-top boxes; and accessories such as
headphones and recordable media. In 2002, Philips entered into a
global five-year strategic alliance with Dell. After the dissolution of
the Components division, some activities were transferred to
Philips CE.
In 2003, Philips CE introduced the Connected Planet vision: a
world in which consumers can access entertainment, information
and services – at any location and at any time, without wires.
Wirelessly connected, internet-enabled products underpinning
this vision are already available today. Philips’ Streamium range of
products (e.g. a TV, a home entertainment system, a micro hi-fi
system, wireless multimedia links) gives the user direct access to
internet content at the touch of a button on the remote control,
and enables the consumer to access and stream content (music,
video, digital photos) from his/her PC wirelessly. These products
combine the storage and accessibility of the PC and the internet
with the excellent performance – in terms of both sound and
picture quality – of Philips’ audio and display products as well as
the convenience of enjoying the content in the home.
Philips CE has been repositioned, having migrated from analog to
digital, from manufacturing to sales and marketing, and from a
broad to a more focused portfolio. CE aims to focus on its
Connected Planet vision, achieve partnerships with leading
retailers, enter into alliances and introduce new sales channels.
These measures are intended to make the organization more
market-oriented and less complex. The Business Renewal Program
is expected to result in a EUR 400 million reduction (versus 2002)
in the organizational cost base by the end of 2005. Unprofitable
activities will be exited. CE is further reducing its asset base by
outsourcing its manufacturing.
32 Philips Annual Report 2004
Information on the Philips Group