Philips scales back U.S. set-top business

Philips Electronics expanded its cost-savings initiative today to include limiting the diversity of set-top boxes it sells in the U.S., saying the move would steer the company and its digital network unit toward profitability.

In a meeting with analysts today, Philips President and CEO Gerard Kleisterlee said partnership opportunities would be explored in order to gain scale in the set-top box space.

But as industry leaders like Motorola and Scientific-Atlanta advance their set-top box business, Philips has made few strides and may be due for a change, said Mike Paxton, senior analyst with Cahners InStat Group.

“This is a business they’ve dedicated a lot of resources to over the past three years and they really have made no progress,” Paxton said. “They haven’t been able to match [Motorola and S-A], so maybe it’s time to throw in the towel.”

Philips once flirted with purchasing then No. 2 set-top box manufacturer General Instrument, but abandoned its pursuit. Motorola purchased General Instrument in January 2000 for $17 billion.

Kleisterlee said Philips is currently identifying and dealing with issues that have arisen in its low-growth, low-return businesses. The company has set out its three- to five-year sites on 10% average annual sales growth and 15% average annual earnings growth.

The news follows yesterday’s announcement that the Netherlands-based consumer electronics giant would cease operations as an independent mobile phone manufacturer. The handset move will result in a one-time restructuring charge of $259 million for the second or third fiscal quarter this year.