Philips: Inventing the Lightbulb, Take 2

Philips Electronics (NYSE: PHG  ) says it has replaced the standard (and now ancient) 60-watt incandescent lightbulb.

That may be wishful thinking, but the company's LED bulb is the first entry in the Department of Energy's "L Prize" competition, designed to encourage new products to replace the old heated-filament model. First prize is $10 million, and more importantly for the winning company, the accolades would help secure hefty government contracts. For investors, the winning company would probably also score big in the market.

With that competition as a backdrop, Philips reported a surprising third-quarter profit earlier this week. The company posted a higher-than-expected net income of $256 million, in large part because of cost-cutting and efficiency measures across the business. Earnings before interest, taxes, and amortization as a percentage of sales grew 5.2 percentage points from the same quarter a year ago. By reducing working capital, Philips has still managed to increase its cash flow despite its continuing revenue declines.

Philips classifies its business into three main sectors -- Health Care, Consumer Lifestyle, and Lighting -- and in mature markets, Philips has seen revenue drop in all three profit-generating areas. Not a big surprise, given the economic climate. But the big news is that health-care sales show double-digit growth in emerging markets. Those gains have added fuel to speculation that the demand engine pulling us out of the recession lies primarily in countries such as China and India.

For that reason, you should keep an eye on consumer-electronics competitors such as Hitachi (NYSE: HIT  ) and Panasonic (NYSE: PC  ) , both of which have significant operations in China and other markets with lucrative growth prospects. On the health-care front, Siemens AG (NYSE: SI  ) might do well to follow Philips' lead in focusing on the emerging markets.

With Philips' innovative technology in its lighting sector, growth in the emerging markets that it focuses on, and effective management in the face of a tough consumer market, I think this company is well-poised to come out of the recession as a strong industry player.

Fool contributor Hunter Pavela owns no companies listed above. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.


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  • Report this Comment On October 16, 2009, at 2:57 AM, Milieunet wrote:

    Philips doing great work on lighting and it's a nice entry for the L Prize http://tinyurl.com/yk6arzm but that entry doesn't look better, more efficient then other LED lightbulbs.

    In The Netherlands the Pharox LED-bulbs are widely spread this month. Comparable with a 60 Watt lightbulb and uses only 6 Watt. Dimable also. Great future for LED Bulbs. See this video: http://tinyurl.com/ydpu84f

    Panasonic recently introduced the Everleds, Sharp has also a nice line of LED Bulbs with....remote control.

  • Report this Comment On October 16, 2009, at 1:12 PM, gofrogsatx wrote:

    I'm a fan of Seesmart LED's line - they manufacture over 400+ bulbs/tubes and have a great dimmable Par product. Check them out at www.seesmartled.com

    They have the only UL/ETL tube line out there.

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