Philips continues divestment program

Electronic News, March 10, 1997 by Jim DeTar

Sunnyvale, Calif.--Philips Semiconductors chairman and CEO Arthur van der Poel, who took the helm a year ago (EN, March 11, 1996), is continuing to restructure the company with a strong divestment program of the company's unprofitable businesses.

Mr. van der Poel, along with Cees Jan Koomen, senior VP/GM Philips Communications & Multimedia Business Group, in a wide-ranging joint interview with Electronic News laid out a roadmap for Philips strategic marketing and technology directions in the semiconductor market.

"I think there is a trend throughout the history of the industry that as it becomes more mature, more things are outsourced," Mr. van der Poel said. "As the industry becomes more mature you have more reliable sources of equipment, materials etc. The by-products, so to speak, for us become the main product for a supplier. So it becomes cheaper and better to spin activities off.

"A few weeks ago we spun off our mask-making center. We also announced a few weeks ago that we are in the process of selling our small lead-frame activity--where about 150 people are working--to Alphatec, for the same reason--they specialize in that and it is no longer a critical element in bringing ICs to the market. Some specialties we still develop in-house but the mainstream we buy.

"We had to take Draconian measures in the early '90s because we were heavy loss-making, when we divested for business strategy reasons and cost-optimization--the things that had to do with what the planners call the bleeders. Grundig is one of the key examples. Superplug was another one where we as a company wanted to get rid of this endless year-after-year bleeding from the bottom line."

Mr van der Poel said the company plans to continue its divestment strategy but no major divestments are planned immediately. "There are some marginal, small activities we want to disembark from. But, apart from doing a bit more foundry and assembly at third parties, you will not expect a major divestment from us in the near future."

Mr. Koomen said that another aspect of Philips recent restructuring is that the company is transforming itself into what he termed a "software-plus-silicon" business.

Commenting on this convergence and the company's systems on silicon approach, Mr. Koomen said: "We are very much becoming a silicon and software company in the newer areas of our activities. And that requires a different way of organizing yourself and a different way of driving your innovation. You need different types of people from a skills set viewpoint. Part of that we grow internally and part of that we get externally."

Mr. van der Poel said he is moderately bullish on Philips' current position in the semiconductor market. He added that the company has identified three key target markets: audio-video, multimedia and communications. "Audio-video in itself is not a spectacular market. It normally grows at single digit figures, but we happen to be good at it. And there is nothing wrong with expanding market share in a market that still grows--and where you have a solid position. The second area is communication. Also there we have a rather solid history but not a very spectacular position in the market."

Mr. Koomen noted that the company's Trimedia digital signal processor (DSP)--one key to Philips future in the semiconductor market, and particularly the multimedia segment--is just now beginning to ship in volume.

"The Trimedia TM1 is currently running through fab. We have working silicon. We have received our first orders for delivery," Mr. Koomen said. He also revealed that in late February Philips processed its first 0.35-micron silicon.

"The first products are 0.5-micron. Those are the verification chips. The production chips on 0.35 are going into production right now. The '98 time-frame is going to be important from a real sales volume standpoint. 1997 is the design and production ramp."

The addition of networked graphics capabilities to PCs is causing a paradigm shift in PCs, Mr. Koomen asserted.

"I think there is going to be a paradigm shift, the old existing microprocessor solution has been very much driven by control, by data processing, file management, those sort of things. But if you add video to that equation in a box--any box whether it's a PC or digital consumer box--that's a different beast. That's a very different stream of data and you need to treat that differently. That's why we started the development of Trimedia several years ago."

Mr. Koomen cited Apple as a partner for Trimedia. "It is visible in the fact that we are working with Apple, for instance. You have seen Gil Amelio's announcement in Tokyo where he basically said that Apple's future--hopefully there is one--is based on three technologies, one of them being Trimedia. We've always worked very closely with Apple over the past few years bringing video to their machines as well as other machines of course."

Philips is actively seeking to partner with other companies, according to Mr. van der Poel. "It is certainly developing more and more as a policy that, rather than seeing it as a last resort and saying to ourselves, 'We really can't do it ourselves, finally we have to do it with a partner,' it is instead one of the first things we ask today. Why do it on our own? A recent example is the technology development we do with SGS-Thomson in Grenoble.