It’s one thing to have lofty ambitions within the safe confines of executive boardrooms, but it’s quite another to let the world in on them.
That’s what Philips Consumer Communications, a joint venture of Philips Electronics N.V. and Lucent Technologies Inc., did when it said it wanted to be one of the top three wireless handset manufacturers.
“Philips has a very ambitious goal that they set for themselves, and they publicly announced that goal,” said Jane Zweig, vice president of Herschel Shosteck Associates Ltd., Wheaton, Md. “That’s a dangerous thing to do in this industry because it signalled the competition to what they were planning to do.”
Following somewhat disappointing first quarter results, Philips indicated it would scale down those ambitious goals for the wireless industry, at least for a while. The wireless handset business lost about $124 million during the quarter, and company officials said the joint venture was about one year behind expectations.
“They haven’t been able to get started as quickly as they thought they could,” said Phillip Redman, senior analyst, wireless/mobile communications research and consulting at the Yankee Group, Boston.
Marrying the management of Lucent and Philips has proved more difficult than expected, say analysts. Other issues have slowed them down as well.
“Their cultures are different, and that continues to be a problem,” said Zweig. “I also don’t think they realized how difficult the U.S. digital technologies would be.”
“[Code Division Multiple Access] technology was more of a challenge than they thought,” said Redman. “Their focus was to bring many products out at once. It’s hard to spread resources out like that.
“Lucent and Philips also have had some problems bringing together their style and technology,” continued Redman, who said products displayed by the company so far have had either a Philips or a Lucent flavor rather than a combination of both. “Integration is a big challenge that is holding them up.”
Lucent and Philips last June announced plans to combine their consumer phone equipment operations into the Philips Consumer Communications joint venture. The company has products for both the wireline and wireless industries, including mobile and cordless phones, answering machines, screen phones and pagers. The agreement was finalized in October.
The deal was thought to supplement each company’s weakness with the other company’s strength. Lucent, with the help of its Bell Labs research arm, was strong in technology, but was less successful at getting its products into the market, say analysts.
Meanwhile, “Philips’ distribution strategy is clear and unique,” said Zweig. “They don’t care if they are selling a television or a phone, but they understand distribution.”
Like most other handset manufacturers, Philips has been late to market with handsets it promised would be out by spring.
“They have been late, but everyone else has been late too,” said Redman. “Even worse, some manufacturers have had handsets returned and they’ve had to re-do them. It’s better to be late than have to re-do.”
Philips has introduced a CDMA phone and a tri-mode Time Division Multiple Access phone, said Redman. However the TDMA phone is underpowered and heavy, and it will need some work before AT&T Wireless Services Inc. will be interested in it, said Redman. Philips’ TDMA handset also is under pressure with manufacturers Nokia Corp. and L.M. Ericsson bringing quality TDMA handsets to market, he said.
Asked whether Philips still has a chance at being a major competitor, Zweig said, “Yes, because of their distribution channels. But will they surpass the top three manufacturers? I’m not so sure about that.”
Zweig predicts Motorola Inc., Nokia and Ericsson will lead the wireless handset market in the United States. Samsung and Sony Corp. also will make inroads, she said.
“Philips could be in the top five or six,” she said. “Their biggest challenge is going to be getting competitive products out there soon.”
“I expect that they better have beautiful phones out by September,” said the Yankee Group’s Redman. “The summer is kind of slow in the industry, but it picks up in September because kids are going back to school and people are getting serious about work again, and then there’s the fourth quarter push with the holidays.
“They are going to be in big trouble if they don’t have phones on the shelf by the end of September or the beginning of October,” he said.
Calls to Philips were not returned.
