Bloomberg/Amsterdam

Frans van Houten says he has long loved Royal Philips. So why is he planning to tear it apart?
Van Houten, Philips’ chief executive officer since 2011, recalls visits to the company’s science centre when he was as young as

six. His father, after all, rose through the ranks to become head of research, and Van Houten’s brother now holds the same

position.
Despite a string of asset sales, Van Houten says Philips still needs streamlining after a century of diversification that saw the

company get into making everything from shavers and semiconductors to televisions and toasters.
“Philips was even in bus companies, in furniture, in toilet seats, and in god knows what,” Van Houten said in his office on the

14th floor of the company’s Amsterdam headquarters.
The potential difficulties came into sharper focus yesterday as Philips said quarterly earnings will suffer from sluggish demand,

currency swings and production delays. The news pushed Philips stock down by as much as 3.5%.
While Philips has in recent years sold its semiconductor business, aerospace operations and television unit, in September Van

Houten unveiled a more drastic revamp. He will continue to oversee a company named Philips that will concentrate on data and

appliances for healthcare, while the slower-growing lighting business will be split off later this year or in early 2016.
“As a private person, as Frans the guy, it was not an easy decision,” Van Houten, 54, said in a November interview. But, he added,

“we have two great growth opportunities that we want to bet the farm on, and we can better bet the farm with two dedicated

companies.”
Last month, Van Houten agreed to buy Volcano Corp for $1bn to expand in imaging of the heart and blood vessels. In November, he

bought a stake in Image Stream Medical Inc to add offerings that assist surgeons with digital images of patients. And a year ago,

Philips purchased a unit of Aerogen that makes portable inhalers.
Philips is betting that patients will increasingly monitor their health and nutrition on smartphones and other devices. The move

will combine Philips’ healthcare and consumer goods in a business called HealthTech, bringing together products such as medical

scanners, toothbrushes and espresso machines.
Van Houten’s plan mirrors moves by other industrial companies. Siemens AG, which competes with Philips in medical scanners, is

expanding energy-equipment operations while divesting its last consumer businesses. Swiss power equipment maker ABB Ltd has sold

six units in the past year to boost service and software revenue. And General Electric Co has been shrinking its finance arm to

focus on manufacturing.
“Investors totally get it,” Van Houten said of the split. “They say, ‘If we have to invest in a diversified way, then let us choose

how we invest.’”
Before yesterday’s tumble, Philips’ shares had risen 5.5% under Van Houten, underperforming Amsterdam’s benchmark index, which has

risen 14% in the same period. Philips jumped 3.5% on Sept. 23, the day Van Houten announced the split, a rare jolt for a stock that

doesn’t typically move much either way.
2015 will be crucial for Philips to prove that Van Houten’s strategy is able to secure long-term contracts with hospitals and other

healthcare providers that will help the company prosper, said Hans Slob, an analyst at Rabobank.
Megadeals will be “Van Houten’s show horse,” Slob said, “the contracts for 15 years or even longer.”
Van Houten’s strategy allows him to target consumer healthcare, a market valued at more than $125bn, but it pushes Philips into

competition with the likes of Apple Inc and Google Inc, which offer fitness-monitoring with data from wearable devices and

smartphone apps.
Philips’ expertise in clinical and hospital settings will set it apart and help it focus on managing chronic diseases, Van Houten

said. That, he added, provides a greater market opportunity than serving people simply seeking to get more fit.
“Healthy people are not very motivated to manage their health,” Van Houten said. “They just don’t care.”
Van Houten, who joined Philips in 1986 in marketing and sales, oversaw the spinoff of Philips’ semiconductor unit in 2006 and later

set up an advisory firm that helped Dutch financial giant ING Group NV split itself into two divisions. Among his first decisions

after he came back to Philips as CEO four years ago was the sale of the television and DVD businesses that had helped make the

company a global consumer brand.
“In the back of my mind was the nagging discussion: where do we take the portfolio?” Van Houten said. “You can get rid of TV, fine,

but then you are in lighting and in health and those don’t have a lot to do with each other.”
Despite Van Houten’s strong family ties to Philips — his father worked there for 35 years until 1991 and his brother has spent his

entire career at the company — he says the logic of the split outweighs any sentimental resistance he may have felt.
“When you try to master the emotions of a decision and say: if you’re 50 years from now and you look back, did we take the right

decisions?” said Van Houten. “Then the decision becomes a lot easier.”