Philips used to be known as a company full of innovation.     It didn’t always get it right. When we talk about the format war of the 1970s between Betamax from Sony and VHS  from JVC, Philips with its video 2000 gets forgotten.    The giant seemed to misread the market with its CDi player too.     Despite years of hype and mountains of free publicity in the press, it died a death.    But then it has its successes too, including the joint collaboration with Sony for the CD and before that the good old compact audio cassette.

But today, it finds itself in the midst of a bubble.

Today’s market for consumer electronics is a bubble if ever there was one.    The problem: innovation becomes commodity far too quickly. One moment, LCD TVs command prices north of several thousand pounds and most of us merely drool over them; the next, they are being sold in Tesco next to the cut-price baked beans.

And Philips is feeling the pinch.  Profits are down from 875 million euros in its first quarter a year ago to just 219 million euros in the quarter just gone.

So overcrowded is the TV market, that Philips, the largest European TV manufacturer, is planning to give up selling TVs to the North American market altogether, and has entered into an agreement with Funai Electric Co to use the Philips brand name over there.  

But, then again, the company is also pointing the way to the future.     For European and US firms to survive in fierce world markets, they need to innovate. 

For Philips, the future appears to be its healthcare division and lighting.

It has recently sold shares in Hsinchu, a semiconductor manufacturer from Taiwan, its stake in LG Displays, a maker of liquid-crystal displays, and ceded control in European chip maker NXP BV.  Meanwhile, it has been buying companies such as medical-equipment maker Respironics Inc.

In the quarter just gone, sales in the healthcare division jumped 5 per cent, and lighting sales increased by 16 per cent.

The company is especially promoting energy-efficient lighting products such as energy saving bulbs.

It’s a case of innovate or stagnate.   And for Philips, it’s a case of innovate out of TVs; expect other famous brands to do the same.