Philips is to merge its LED and automotive lighting businesses and create a standalone unit with sales of about €1.4bn within the Dutch electronics and healthcare group.
The Amsterdam-based company said on Monday it would seek third-party investors in the new lighting components unit, while remaining both a customer and shareholder of the businesses. Frans van Houten, chief executive, said it was “not necessary” to retain a majority stake.
Philips is structured into three operating divisions: healthcare, consumer lifestyle – which covers products from electric razors to kitchen appliances – and lighting. The lighting business has five subsidiaries, including Lumileds and automotive, which makes headlights for cars.
Lumileds produces high-power LED components, used for instance as flashlights in smartphones and lamps for televisions.
Mr van Houten said the move to combine the component businesses made sense because they primarily served manufacturers, rather than making finished products, such as lightbulbs.
The shift to LED technology, he said, had split the lighting market into two distinct operations. “The nature of making components is quite different to making applications, such as street lighting, stadium lighting and office lighting,” he said.
“By giving the LED components business access to capital markets as a standalone company we give them the room to play that out and remain successful.”
He added: “We therefore believe it makes sense to separate these two plays.”
Sales of energy-efficient LEDs were a bright spot in otherwise gloomy first-quarter results reported in April. The company estimates that by 2016 half of the total lighting market will be LED, compared with about 30 per cent at present.
The flipside of this has been a contraction in demand for conventional, incandescent lighting, which has meant cost cuts for Philips. The lighting business has lost almost 4,000 employees over the two years – about four-fifths of jobs cut across the whole group.
Asked about a potential initial public offering of the components unit, Mr van Houten said: “All those options are open.”
Pierre-Yves Lesaicherre, the current chief executive officer of Lumileds, will run the as-yet-unnamed new unit, which is expected to be formed in the first half of 2015.
Philips said the costs of setting up the combined business were expected to be about €30m, a charge that would be taken in the second half of this year.
Philips shares rose 3.5 per cent to €23.03 in early Amsterdam trading on Monday. The wider AEX index was flat.