Interview: Gerard Kleisterlee, ceo Philips Electronics

Q. Philips had a few troubled years in the 1990s. Are those days now behind you?

A. In the late 1990s, Philips had a few excellent years and a few difficult years when the technology bubble burst.

Q. How did that affect Philips?

A. We have a number of very strong businesses that were not so exposed to the technology bubble. In particular, our medical and consumer businesses are doing very well. The technology side still suffers from a severe decline in demand, particularly the semiconductor sector as a whole.

Q. How is the consumer electronics sector doing?

A. Very well. We have introduced a large range of new products, and we are getting a very good response to those products - both from consumers and retailers.

Q. How has the drop in global markets affected consumer confidence?

A. Significantly. The interesting thing is that despite a drop in consumer confidence, consumers are still spending their money.

Q. Philips has been at the forefront of introducing new products. Will that trend continue in the coming years?

A. That trend will absolutely continue because, as you may have noticed, we have strengthened in particular the marketing side of our businesses, whereas the technology side was always strong. But that technology did not always result in a stream of new, exciting products.

Now, you can see the trend towards change there. At the consumer electronics show in Las Vegas, we introduced a whole range of flat TVs, both in LCD and VDP, and all screen sizes. We introduced wireless web pads, detachable monitors, the next generation of i-streaming, which is an audio system that links directly to the Internet so that you can dial like you dial an FM or AM radio station.

We will extend that range in the near future to also cover video. We introduced our new generation of universal remote controls, the I-Pronto - again a device that has Internet access. But it is too much to summarize in a short time.

Q. You're facing competition from your traditional rivals, the Japanese, but also from Korean companies.

A. You can see that Korean companies, particularly Samsung, are making a very strong effort in the consumer electronics field. You just have to be fast on your feet and continue to innovate and differentiate. Our differentiation is that we do not just focus on the individual projects themselves, but on a whole system.

We talk about the concept of the interconnected home. And we bring products that provide that connectivity and the interoperability between the different pieces of electronic equipment that we have in our houses.

Q. Has the recent rise in the value of the euro hurt Philips?

A. A strong euro is good for some businesses and less good for others. We are a global company that has a fairly good spread, both of its sales across the regions as well as of our industrial and sorting activities.

In general, we can cope fairly well with fluctuations in currencies. What we do not like - and neither does any other company - is sudden change because it creates disruptions that we cannot immediately react to. For the rest, I think we can cope relatively well with the currency movements as they are going on.

Q. How important is the Middle East as a market?

A. The Middle East is a market that is characterized by very different situations. There are a number of countries where there is already developing a middle class that has sufficient income to spend on the kind of products that we provide. It is an area that will be of increasing interest to us.

We're refocusing our efforts to be in the Middle East market with the products that they require. There are other countries that are less developed, and there we are looking to use our technology in such a way that we create specific products for the needs of the lesser-developed world, as well as having products for the developed world.

Q. Which are the most exciting countries for you in the Middle East?

A. In the Middle East, it's the most exciting country at the moment is apparently Iraq - but for different reasons. Economies like Morocco, Egypt and Iran are economies with a large population and a well-educated workforce, where there is GDP growth and where there therefore is a market.

Q. What about Gulf markets, like Saudi Arabia or the UAE?

A. They are not big markets in the sense that they don't have a large population. They are interesting markets, and always have been, for the more professional side of the business. We've always been engaged, for example, in hospitals in Saudi Arabia. The UAE has been predominantly a trading place, a center for trade in the region.

Q. How will Philips be affected by war in Iraq?

A. Philips is no exception to the general economy and industry. A war in Iraq will have its impact on the exchange rate of the dollar, on oil prices, and therefore it will have its effect on the prices of certain consumer goods.

It will also further decrease consumer confidence in general. We can only hope that, if it comes to that, it will be a short period after which we start to restore confidence, both on the political front and on the economic front.

Q. What is the worst-case scenario? Are you looking at shrinking sales?

A. We are not looking at shrinking sales because, in almost all of our businesses, we have kept up our innovation rate. Whatever the markets do, good companies, which have an attractive range of products, are able to increase sales. That's because consumers, even if they buy less, are more selective and go for the best product on offer. That's the way that we'll have to compete.

Q. So will you gain market share from the competition?

A. In general, it would probably be arrogant to say that. In specific cases, we think we have product offerings where we can outpace the competition.

Q. Between Sony and Samsung, who is a bigger rival for you?

A. They're different rivals. They're both extremely strong companies. Sony is more broadly positioned than Samsung. Samsung has targeted a few specific fields in which they are doing an extremely good job.

Q. Are we going to see significant declines in the prices of plasma screens?

A. We already have seen strong price declines there. It's not a mainstream consumer product yet. But as penetration continues, volume goes up. Like with any other piece of electronic equipment, prices will become cheaper.

Plasma will have strong competition from LCD, where based on the volumes in laptops and computer screens, we have a strong base of volume already for bringing the prices down significantly.

Q. What are you betting on? LCDs or plasma?

A. We have both, although we are more engaged in LCD because we have a large joint venture with LG electronics: LG-Philips Display LCD. We are not directly engaged in the manufacturing of plasma, but we offer a full range of plasma TVs. The consumer will decide which product is going to win.

Q. In a declining market, do you increase your advertising spend to lure the consumers?

A. Irrespective of the declining market, we have decided to step our advertising effort, particularly in the United States, because we have a strong product offering and that also needs to be told to the consumer. That requires a little more effort than we've made so far.