Philips exits handset-manufacturing business

Making good on its pledge to exit the handset business, Dutch vendor Royal Philips Electronics today announced it would hand over its mobile phone manufacturing operations to China Electronics Corp.

The two will build on an existing joint venture between Philips and CEC subsidiary Szenchan SED Industry. CEC will increase its stake in the company, leaving Philips with a minority interest, and acquire all of Philips GSM manufacturing operations and much of its research and development unit. CEC will move those operations to Asia, shutting down Philips’ one European plant and cutting 1235 jobs. Though the venture will continue to use the powerful Philips brand name, and Philips will market the phones through its traditional sales channels, Philips will take a hands-off approach to the venture.

“We are confident that the arrangement with CEC will give our customers a renewed trust in the continuity of our business,” said Gerard Kleisterlee, Philips president and CEO, in a statement. “By reducing the cost base drastically we will be able to realize market presence with greatly reduced exposure.”

Philips joins a steady stream of European vendors seeking safe haven by outsourcing their handset manufacturing. Both Ericsson and Alcatel announced earlier this year they would outsource manufacturing to Flextronics, and Alcatel is entertaining the notion of exiting the handset business entirely. Philips’ mobile phone division has lost money from the start, despite an initiative in 1998 to attack the industry’s leaders and boost its global market share beyond 4 percent. The division posted first quarter 2001 loss of $118 million.

Nevertheless, Philips has backtracked farther with this decision than most of its competitors, said Ray Jodoin, principal wireless technology analyst for Cahners In-Stat Group. While other vendors are forming joint ventures and outsourcing manufacturing to take advantage of cheaper labor markets worldwide and to lessen their financial exposure, Philips is actually relinquishing control of its business to CEC, Jodoin said.

“An Ericsson handset is an Ericsson handset. It’s just made by Flextronics,” Jodoin said. “But a Philips handset will not be a Philips handset. It’s a China Electronics Corp. handset with the Philips logo on it. The Chinese will control the company.”

The restructuring will shut down Philips’ lone European plant, located in Le Mans, France, and result in a one-time restructuring charge of 300 million Euros ($256 million).