Economy

In a new light

Philips shuts in Shenzhen, but hopes for smarter future

Bulb w

In 1891 a Dutch engineer called Gerard Philips set up a factory in his native Eindhoven to make electric light bulbs. Electricity was the disruptive technology of its day and the first light bulb had been invented 12-years earlier by the American Thomas Edison. Ironically, Philips’ first sales were to a candle factory, which wanted to use them to reduce the risk of fire.

Just over a century later and Philips is undergoing a transformation. Philips Lighting was spun-off from its parent Koninklijke Philips NV at the end of last month and listed on the Amsterdam Stock Exchange with a valuation of €3 billion ($3.4 billion). More pressing for the Chinese media, however, is that in late May the group shut down its factory in Shenzhen, where it had 60 production lines. One key factor was rising costs, and media has been analysing what the closure means for China’s manufacturing industry in general and Shenzhen in particular.

Philips bought a majority stake in its Shenzhen-based light bulb venture back in 2008 and took full control in 2010. When it first came to Shenzhen, wages were roughly half the level they are now. Now the city’s workers enjoy China’s third highest salaries according to data from the recruitment site Zhaopin. In early 2016 factory wages were Rmb7,728 per month ($1,172), compared to Rmb3,148 a decade ago.

Land prices have also shot up, with China Economic Weekly noting a recent sale of a plot for Rmb56,000 per square metre in the Longhua district (one of four new districts created to cope with Shenzhen’s rapid expansion).

The newspaper concludes that it “was reasonable to shut the factory down, given Philips was under considerable pressure from an operational and strategic point of view”. CBN has noted that other lighting firms are leaving Shenzhen too, reporting that Honglitronic has moved inland to Jiangxi province, while Ledman Optoelectronics has moved further north into Guangdong and Masan Technologies to the nearby city of Dongguan.

Other parts of the media have been interpreting events less as a setback for Shenzhen and more as evidence that the city is moving up the value chain – becoming keener to design drones than mass-produce light bulbs. It’s a topic we looked at in our latest Focus issue on the Pearl River Delta (which can be downloaded from our website).

Philips Lighting is also turning to higher value-added products and services, according to Zhang Yaping from Shenzhen’s LED Industry Association. Traditional lighting still accounts for the bulk of its revenues (38% in 2015), but revenues from LED lamps are growing and currently stand at 18%. Analysts says the LED market is relatively fragmented, although Philips Lighting occupies the number one slot with a global market share in the mid-teens, followed by Germany’s OSRAM at number two.

Both companies are moving away from producing their own light bulbs and focusing on design, branding and intelligent networking services. Earlier this year, China Daily reported that Philips is expanding its R&D centre in Shanghai and plans to reinvest 30% of profits in new lighting products in China each year.

The focus will be on LED which lasts 15 times longer than incandescent bulbs, as well as smart lighting, where Philips says it wants to team up with local companies like Xiaomi and Alibaba.

Ministry of Industry and Information Technology figures show that Chinese companies now account for 20% of LED products. And in smart technology, Xiaomi could become one of Philip’s main competitors. Xiaomi has unveiled a bedside light called Yeelight, which can talk to a smartphone to regulate lighting conditions, although tech analysts say the Philips Hue system is more sophisticated in controlling light settings across multiple rooms. It can also be programmed to turn off lights after the owner’s smartphone is detected leaving the building.

It is all a very long way from the very first light bulb, which had a carbonised cotton thread for its filament, and had a lifespan of just under 14 hours.


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