Philips 2012 Annual Report Download - page 89

7 Risk management 7.3 - 7.4
Annual Report 2012 89
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 have a material
adverse affect on Philips’ earnings, particularly in
Healthcare and Lighting which have significant amounts of
goodwill (see also note 9, Goodwill).
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 is the result of an extensive
patenting process that could be influenced by a number
of factors, including 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 to
Consumer Lifestyle where third-party licenses are
important and a loss or impairment could have a material
adverse impact on Philips’ financial condition and
operating results.
7.4 Operational risks
Failure to deliver on the objectives of the transformation
programs.
In 2011 Philips has started a very extensive transformation
program (Accelerate!) to unlock Philips’ full potential.
Accelerate! spans a time period of several years. Failure
to achieve the objectives of the transformation programs
may have a material adverse effect on the mid and long
term financial targets.
Failure to achieve improvements in Philips’ solution and
product creation process and/or increased speed in
innovation-to-market could hamper Philips’ profitable
growth ambitions.
Further improvements in Philips’ solution and product
creation process, ensuring timely delivery of new
solutions and products at lower cost and upgrading of
customer service levels to create sustainable competitive
advantages, are important in realizing Philips’ profitable
growth ambitions. The emergence of new low-cost
competitors, particularly in Asia, further underlines the
importance of improvements in the product creation
process. The success of new solution and product
creation, however, depends on a number of factors,
including timely and successful completion of
development efforts, market acceptance, Philips’ ability to
manage the risks associated with new products and
production ramp-up issues, the availability of products in
the right quantities and at appropriate costs to meet
anticipated demand and the risk that new products and
services may have quality or other defects in the early
stages of introduction. Accordingly, Philips cannot
determine in advance the ultimate effect that new
solutions and product creations will have on its financial
condition and operating results. If Philips fails to accelerate
its innovation-to-market processes and fails to ensure that
end-user insights are fully captured and translated into
solution and product creations that improve product mix
and consequently contribution, it may face an erosion of
its market share and competitiveness, which could have a
material adverse affect on its financial condition and
operating results.