Philips 2007 Annual Report Download - page 95

Philips Annual Report 2007 101
Concurrently, it is imperative to understand changes
in patterns related to end-user needs and preferences,
and to align differentiation initiatives and innovations with
the brand promise of “sense and simplicity”. If Philips fails
in this area, its growth ambitions may be hampered.
Acquisitions could expose Philips to integration risks
and challenge management in continuing to reduce
the complexity of the company.
Philips has recently completed and announced acquisitions,
and may continue to do so in the future, exposing Philips
to integration risks in areas such as sales and service force
integration, logistics, regulatory compliance, information
technology and  nance. Integration dif culties and complexity
may adversely impact the realization of an increased
contribution from acquisitions. Furthermore, organizational
simpli cation and resulting cost savings may be dif cult
to achieve.
The ability to secure and retain intellectual property
rights for products, whilst maintaining overall
competitiveness, is important.
Philips is dependent on its ability to obtain and retain
licenses and other intellectual property (IP) rights
covering its products and its design and manufacturing
processes. The IP portfolio results from an extensive
patenting process that could be in uenced by, amongst
other things, innovation. The value of the IP portfolio
is dependent on the successful promotion and market
acceptance of standards developed or co-developed
by Philips. This is particularly important for Consumer
Electronics where third-party licenses are important
and
a loss or impairment could negatively impact Philips’ results.
Philips’ ongoing investments in the “sense and simplicity”
campaign, with a focus on simplifying the interaction with
its customers, translating awareness into preference and
improving its international brand recognition, could have
less impact than anticipated.
Philips has made large investments in the reshaping of
the Group into a more market-driven company focusing
on delivering advanced and easy-to-use products and
easy relationships with Philips for its customers. The brand
promise of “sense and simplicity” is important for both
external and internal development. If Philips fails to
deliver on its “sense and simplicity” concept, its growth
opportunities may be hampered.
Philips may be in exible in adapting swiftly to changes
in industry or market circumstances.
Paradigmatic shifts in the industry or market, like the
transition from traditional lighting to energy-saving
and LED lighting, may drastically change the business
environment. If Philips is unable to recognize these
changes in good time, or is too in exible to rapidly
adjust its business models, growth in ambitions and
 nancial results could be affected.
Market risks
Philips’ overall performance in the coming years is dependent
on realizing its growth ambitions in emerging markets.
Emerging markets are becoming increasingly important
in the global market. Asia is an important production,
sourcing and design center for Philips. Philips faces
strong competition to attract the best talent in tight
labor markets and intense competition from local Asian
companies as well as other global players for market
share in Asia. Philips needs to be part of the growth
of emerging markets, invest in local talents, understand
developments in end-user preferences and localize the
portfolio in order to stay competitive. If Philips fails to
achieve this, its growth ambition and  nancial results
could be affected.
As Philips’ business is global, its operations are exposed
to economic and political developments in countries
across the world that could adversely impact its
revenues and income.
The business environment is in uenced by economic
Strategic risks Market risks Operational risks Financial risks Compliance risks
Corporate Governance
Philips Business Control Framework
Philips General Business Principles
98 Risk management 112 Our leadership 116 Report of the Supervisory Board 126 Financial Statements