Royal Phillips Electronics (PHG - Analyst Report) announced that it will be initiating the process to integrate its Lumileds (LED components) and Automotive lighting businesses into a stand-alone company within the Philips Group. The process is scheduled to be completed by the second-quarter of 2015. The company expects the setup cost of about €30 million ($40.2 million) to be incurred in the second half of 2014.
This restructuring is a strategic move by the company to attract investment into the business for driving further growth in LED luminaries, LED lamps and LED lighting systems and services. The business will cater to both professional and consumer markets.
In 2013, the two businesses jointly contributed about €1.4 billion ($1.9 billion) to the company’s revenues. The strong performance of Lumileds and Automotive lighting businesses coupled with the immense scope for scaling growth is likely to form a lucrative investment opportunity for third-party investors.
The combination of the two businesses will also benefit customers by providing them with more extensive digital lighting components solutions while integrating the research and development (R&D) and supply chains efficiently, especially for automotive applications.
Philips Lighting will continue to collaborate with this stand-alone facility for innovation as a customer and a shareholder. This will serve the company’s long-term aims as well. Since 2013, the company has been restructuring its portfolio to position itself better as a focused company in the lighting, healthcare and lifestyle markets. The company has also been implementing a comprehensive performance improvement and change program called Accelerate to realize the value potential and speed up growth.
Phillips currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the sector include Universal Electronics Inc. (UEIC - Snapshot Report) , Garmin Ltd. (GRMN - Analyst Report) and GigOptix, Inc. (GIG - Snapshot Report) . While Universal Electronics sports a Zacks Rank #1 (Strong Buy), Garmin and GigOptix carry a Zacks Rank #2 (Buy).