Philips 2008 Annual Report Download - page 98

Philips faces strong competition to attract the best
talent in tight labor markets and intense competition
from local companies as well as other global players
for market share in emerging markets. 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 financial results could be affected materially.
Philips is exposed to markets with high complexity,
and is facing continued competition.
Philips continually faces competitive challenges such as
speed of innovation, fast-moving market trends, rapid
technological change, evolving standards, shortening
product life cycles, the cyclical nature of certain sectors
and price erosion. Earnings improvement is highly exposed
to these increased competitive challenges, which requires
margin management through measures such as price
management, cost reduction and/or efficiency increase.
Philips produces consumer products that compete
against products sold by an increasing number of
competitors on the basis of many factors including
price. Therefore, Philips must continue to develop
superior technology, anticipate consumer tastes and
continue to rapidly develop attractive products that
appeal to changing and increasingly diverse consumer
preferences. In the Consumer Lifestyle sector, Philips
faces increasingly intense pricing pressure and shorter
product cycles in a variety of consumer product
categories. If Philips is unable to effectively anticipate
and counter the price erosion that frequently accompanies
its products, or if the average selling prices of Philips’
products decrease faster than it is able to reduce its
manufacturing costs, Philips’ gross margins will decrease
and its results of operations and financial condition
may be negatively impacted materially.
Philips is exposed to governmental investigations
and legal proceedings with regard to increased
scrutiny of possible anti-competitive market practices.
Philips is facing increased scrutiny of possible anti-
competitive market practices by national and European
authorities, especially in product segments where Philips
has significant market shares. For example, Philips
and certain of its (former) affiliates are involved in
investigations by competition law authorities in several
jurisdictions into possible anti-competitive activities
in the Cathode-Ray Tubes, or CRT, industry and are
engaged in litigation in this respect. Philips’ financial
position and results could be materially affected by
an adverse final outcome of these investigations and
litigation, as well as any potential claims in this respect.
Furthermore, increased scrutiny may hamper planned
growth opportunities provided by potential acquisitions.
Market risks
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.
Philips’ business environment is influenced by economic
conditions globally and in individual countries where
Philips conducts business. During 2008, the capital
and credit markets experienced extended volatility
and disruption that have reached unprecedented levels
and have negatively impacted both consumer borrowing
and spending and economic growth globally. If these
levels of market volatility and disruption continue or
worsen, or the current global economic downturn
continues to worsen, Philips’ revenues, results of
operations, and financial condition may continue to
be affected materially and adversely. For example, the
current tightening of credit in the financial markets
may make it more difficult for Philips’ customers to
obtain financing and as a result, they may modify,
delay or cancel plans to purchase Philips’ products
and services or a slowdown in the automobile and
construction industry could impact the results of our
Lighting sector. All Philips’ sectors are affected by
these market conditions.
Numerous other factors, such as fluctuation of energy
and raw material prices as well as global political conflicts,
including the Middle East and other regions, could
continue to impact macroeconomic factors and the
international capital and credit markets. Economic
and political uncertainty may have a material adverse
impact on Philips’ financial condition or results of
operations and can also make Philips’ budgeting and
forecasting more difficult.
Philips may encounter difficulty in planning and managing
operations due to unfavorable political factors, including
unexpected legal or regulatory changes such as foreign
exchange import or export controls, nationalization
of assets or restrictions on the repatriation of returns
from foreign investments and the lack of adequate
infrastructure. As emerging markets are becoming
increasingly important in Philips’ operations, the above-
mentioned risks are also expected to grow and could
have an adverse impact on Philips’ financial condition
and operating results.
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. In addition, Asia is an important
production, sourcing and design center for Philips.
Philips Annual Report 200898
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Our group performance
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We care about...
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Message from
the President
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Performance highlights
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Who we are