With sales of its light-emitting diode rising 43 percent during the second quarter of fiscal year 2014, Philips plans to shut down more factories that produce incandescent light bulbs and invest more capital into developing LED lights and health care.
Philips was said to be preparing to ramp up its spending on retooling its lighting sector from roughly $135 million to $229 million.
Frans Van Houten, Philips CEO, said his company was accentuating its focus on LED light fixtures, connected LED systems and LED bulbs for both consumer and commercial markets. He said the merging of Philips' lighting units into one division would allow the company as a whole to grow.
"Our decision to combine Lumileds and Automotive lighting businesses into a standalone company within Philips will allow it to extend its leading portfolio of digital lighting components and achieve robust growth, serving even more customers in the industry, as well as Philips Lighting," said Van Houten. "Lighting is taking advantage of the many opportunities in the growing LED space, driven by increased demand for energy efficiency and digital controls."
Philips' LED sector has been trending upward, accounting for 36 percent of its lighting division in the second quarter of fiscal year 2014 -- it represented 25 in the previous year. However, the company has struggled on multiple fronts.
"While 2014 is expected to be a challenging year overall, we anticipate [earnings before interest, taxes and amortization] for the group, excluding restructuring and acquisition-related charges and other items, in the second half of the year to exceed the level of the same period last year," stated Van Houten. "We continue to increase efficiency and drive profitable growth through the execution of our multiyear 'Accelerate' transformation and are firmly committed to reaching our 2016 targets."
While Philips projected that forecasts were a bit too optimistic for its health care sector, which makes up 40 percent of its business, it reported that its net earnings of $328 million on 5.3 billion transactions ended up being close to expectations.
Van Houten attributed the health of Philips' health care division to demand for its products in emerging markets and predicted that the sector would trend upward through the fourth quarter of fiscal year 2014 and well into 2014, though the company still faced a lot of challenges right around the corner.
"We are on the right track," said Van Houten. "But overall we expect 2014 EBITA to be lower than in the previous year."
