Unanswered Questions Abound in Funai-Philips TV License Deal
Questions outnumbered answers in the aftermath of Philips’ surprise announcement Tuesday giving Funai responsibility for sourcing, marketing, distribution and sales of all Philips and Magnavox TVs in the U.S. and Canada. Funai will pay Philips an unspecified royalty for the exclusive use of the Philips and Magnavox TV brands under a five-year agreement that takes effect Sept. 1.
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One big uncertainty is what becomes of the Philips TV sales and marketing force. Funai has agreed to set up a “Philips team” in Atlanta to run sales, marketing and distribution, Andy Mintz, Philips senior vice president for audio, video and TV products, told us in an interview. It’s conceivable that many current Philips employees could land jobs there with Funai, Mintz said. Philips employees were told of the agreement in “town hall” briefings minutes before the 12 noon EDT announcement, Mintz said. Top Funai and Philips executives signed the agreement only two hours before the announcement was released, he said. Philips itself is moving its U.S. CE headquarters to Stamford, Conn., from Atlanta this summer.
Philips will take charges of up to 125 million euros this year for the costs of the Funai agreement and other steps to improve the financial performance of its TV operations globally, the company said. But Mintz wouldn’t comment when asked what portion of the 125 million euros would go toward severance payments for displaced Philips employees because the company is scheduled to report quarterly earnings on Monday.
The agreement with Funai “secures continued presence of Philips- and Magnavox-branded TVs in North America in a model that safeguards Philips profitability in this highly competitive market,” Philips said in a statement. It quoted CEO Gerard Kleisterlee as saying the pact makes good on “our commitment that we would take decisive steps in addressing the unacceptable profitability levels in our TV business in 2008.” Last fall, Philips Electronics North America President Stewart Muller was appointed to head up a new Connected Displays business unit to handle the sales and marketing of Philips and Magnavox TVs. In January, Philips said the company hadn’t ruled out a sale of Connected Displays after the business unit struggled in 2007 amid pricing pressure in LCD TVs (CED Jan 23 p5).
Funai, whose U.S. sales peaked around $1.6 billion in 2004, has marketed Sylvania and Emerson products under license deals. Despite Funai’s enormous size and its clout as a leading CE supplier to Wal-Mart, it runs a very lean North American operation through subsidiary offices in Torrance, Calif., and Rutherford, N.J. Funai has marketed Emerson through Wal-Mart for about 10 years as part of a licensing agreement with Emerson Radio. It also has a pact with Sylvania Osram for use of the Sylvania banner on LCD TVs and other products. Whether Funai’s new pact with Philips will affect those agreements couldn’t be determined at our deadline.
Funai has been marketing several models of Magnavox and Philco coupon-eligible converter boxes under a license agreement with Philips signed last fall. Mintz said talks about the converter box pact were separate from those surrounding the Funai agreement announced Tuesday. Kleisterlee touted Philips’ “18-year working relationship” with Funai as contributing to their agreement.
The agreement with Funai frees Philips of an unprofitable TV business, but affords Funai some likely benefits as well, most notably in gaining access to an increased supply of LCD panels, said industry executives we polled. Funai’s TV business suffered last year amid a tight supply of LCD panels, and will likely gain from Philips’ existing supply agreements with LG Displays and others. While Funai has its own assembly plants in China, Jabil Circuits has assembled Philips TVs in the past.