The world's largest provider of CRM software, Salesforce.com (NYSE:CRM), and leading health tech and electronics company, Philips (NYSE:PHG), have recently announced that they are forming a partnership. The goal of this initiative is to create a cloud-based health care platform through which doctors and clinicians can monitor patients, expanding the health care service beyond the health center. Now, both companies are entering a market segment in which tech giant Apple (NASDAQ:AAPL) will also participate with the launch of its new health care platform, HealthKit.
So far, Salesforce and Philips have worked on two apps that will be launched later this summer: "Philips eCareCoordinator," designed to help clinicians monitor their patients, and "Philips eCareCompanion," which collects home-based data from patients. If both companies manage to synergistically combine their strengths, it could propel financial growth and set them as pioneers in a relatively new segment of the health tech industry.
Stepping in a new market with growth potential
One key aim of the partnership between Salesforce and Philips is to dominate a market segment with potential for growth. As more companies start to focus their attention on the Internet of Things, the two organizations are grabbing their own early share with a mobile, connected health care-cloud-based platform that allows for device interoperability. This platform could satisfy a significant demand as clinicians look for more efficient ways to treat patients with chronic illnesses and intervene in any health issue.
Salesforce.com's revenue growth
In its latest quarter, Salesforce generated $1.23 billion in revenue, growing 37% year over year and beating analyst expectations of $1.21 billion. Although the company has shown consistent growth throughout the years, it also shows constant net losses, which makes it more of a growth pick for long-term oriented investors.
However, the company has managed to maintain positive non-GAAP profit margins. It is still worth noting that this margin has decreased in the past couple of quarters from 6.8% to 5.7%, which shows the cost implications of the company's recent revenue growth.
If Salesforce manages to keep costs low in its new partnership, the company could acquire a new revenue stream with a more efficient margin. Moreover, it might do so through the marketing and vast customer reach provided by Philips as a leader in the health tech industry, which could alleviate expenses.
Expanding Philip's presence in the health tech market
In its most recent quarterly results, Philips reported a year-over-year 14% drop in net profit of $190.5 million, with sales falling 4.5%. For that matter, CEO Frans van Houten admits that 2014 will be a challenging year, but the company will still meet its 2016 goals. Currently, Philips is experiencing currency problems in the European zone, while sales of health tech products have lately diminished.
The new platform could allow Philips to expand its reach in medical devices and grow in the health tech industry. Also, it recently sold its audio and home entertainment unit, and plans to focus more on becoming a leading health and well-being tech company. The potential success of its new telemedicine initiative with Salesforce, plus its ongoing cost-cutting process, could result in significant growth, increasing the likelihood that the company will achieve its 2016 targets.
Apple's entrance in the market
In early June, tech giant Apple announced that it is partnering with leading electronic health records software company Epic Systems and the Mayo Clinic to release its own health platform, HealthKit, and app, called "Health," along with the iOS 8. Since most clinicians use Epic software to track patient's records, the Cupertino-based company can reach a large number of users, and also allow care managers to efficiently track their patients' health and intervene when necessary.
The company might launch its health tech platform through the much-rumored iWatch, which could also serve as a sensor for health measurements. Given that iOS 8 will include the upcoming health app, a great number of Apple mobile device users will have access to it and could potentially incorporate it into their daily lives.
Final foolish takeaway
The new partnership between Salesforce and Philips can provide several benefits for both companies. Since Philips can reach a large number of clinicians and customers, it could lower marketing expenses for Salesforce, improving margins to a certain extent. Plus, the American company can maintain its revenue growth. In regard to Philips, it will count with a new service for its health technology, further differentiating itself and expanding its reach in the market.
It is worth noticing that Apple is entering this industry with HealthKit, which will be available to future iOS 8 users and will also be leveraged through both Epic Systems' medical records and the Mayo Clinic. Given that Salesforce and Philips offer differentiated platforms with device interoperability and access to relevant health-related data, their partnership might result in consistent sales plus a significant share of the market.