Philips 2008 Annual Report Download - page 97

the realization of an increased contribution from
acquisitions. Philips may incur significant acquisition,
administrative and other costs in connection with
these transactions, including costs related to the
integration of acquired businesses.
Furthermore, organizational simplification and resulting
cost savings may be difficult to achieve. Acquisitions
may also lead to a substantial increase in long-lived
assets, including goodwill. Write-downs of these assets
due to unforeseen business developments may materially
and adversely affect Philips’ earnings, particularly in
Healthcare and Lighting which have significant amounts
of intangible assets.
Philips’ inability to secure and retain intellectual property
rights for products, whilst maintaining overall
competitiveness, could have a material adverse effect
on its results.
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 influenced 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 applicable for Consumer
Lifestyle where third-party licenses are important
and a loss or impairment could negatively impact
Philips’ results.
Philips’ ongoing investments in the “sense and simplicity”
brand 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, which
could have a material adverse effect on Philips’
revenue and income.
Philips describes the risk factors within each risk
category in order of expected significance to give
stakeholders an insight into which risks it considers
more prominent than others at present. Describing
risk factors in their order of expected significance
within each risk category does not mean that any risk
factor may not have a material and adverse impact on
Philips’ business, strategic objectives, revenues, income,
assets, liquidity or capital resources. Furthermore,
a risk factor described after other risk factors may
ultimately prove to have more significant adverse
consequences than a more prominent risk factor.
Over time Philips may change its view as to the relative
significance of each risk factor. Philips does not order
the risk categories themselves in order of importance.
Strategic risks
Failure to deliver the Philips strategy may adversely
affect results and negatively impact shareholder value.
Through its strategy, Philips aims to achieve profitable
growth. Philips’ inability to transform this strategy
into action and to meet the financial targets as
planned, may cause its share price to drop.
Philips may be unable to adapt swiftly to changes
in industry or market circumstances, which could
have a material adverse impact on its financial
condition and results.
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 inflexible to rapidly
adjust its business models, growth ambitions and
financial results could be affected materially.
Philips performs cost-cutting initiatives, including
streamlining product portfolios, capacity adjustments
and headcount reduction. These measures impact its
results, and any future contribution of these measures to
its profitability will be influenced by actual savings achieved
and by its ability to sustain these ongoing efforts.
Acquisitions could expose Philips to integration risks
and challenge management in continuing to reduce
the complexity of the company.
Philips has recently completed 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 finance. Integration
difficulties and complexity may adversely impact
Philips Annual Report 2008 97
122
Performance statements
114
Supervisory Board report
110
Our leadership
94
Risk management
70
Our sector performance