A Very Tough Baby

Quietly last week, the North American Philips Co., Inc. announced that it will spend $20 million on the postwar expansion of its three war-working U.S. plants (at Dobbs Ferry, Mt. Vernon, N.Y., and Lewiston, Me.). This was not a dazzling amount of money. Yet the news set the whole $3 1/2-billion U.S. electronics industry on edge. Why?

North American Philips is an invasion force, one of the newest arms of Holland's rich, world-powerful N. V. Philips Gloeilampenfabrieken (Incandescent Lamp Works Co.), of Eindhoven. Back of North American Philips are $250 million in assets, brains, familiarity with cartel pricing agreements and patent pools that in a generation made Philips of Eindhoven virtual master of Europe's radio and light-bulb industry. N.A.P., born in 1942, is already a tough baby.

So is Parent Philips. In 1891, Dutch Engineer Gerard Philips borrowed 150,000 guilders from his banker father, bought a lamp works in the cheap-labor town of Eindhoven. Gerard, a few months short of bankruptcy, urged his brother Anton to try to sell Philips bulbs. Anton agreed, traveled gaslighted Europe, sold bulbs far beyond the plant's capacity to produce (his greatest coup was a 50,000-bulb-a-year order for the Tsar's Winter Palace). By 1912, the company was big enough to be incorporated (one share was worth 1,000 guilders).

Double Selling. During World War I, Philips stayed on its neutral feet. In 1919, it began its characteristic way of doing business. The first was an exclusive cross-licensing of light-bulb patents with General Electric. Then followed a truce with the German lamp trust, Osram, and the formation, in 1924, of the giant Phoebus cartel, to control the sale of lamp bulbs throughout the world. This included companies in Britain, France, Germany and Japan, and American-owned foreign companies. Phoebus "stabilized" prices at a high level, roughly four times higher than in the U.S.

When war again broke out, Philips interests were everywhere. As the Nazis swept into Holland, Philips Chairman Anton Frederick Philips, 71, and Managing Directors P. F. S. Otten, Dr. H. F. Van Walsem, and O. M. E. Loupart escaped from the Hook of Holland in a British destroyer. They had already set up trusts in Britain and the U.S., to keep control of properties the Nazis might miss. But their greatest assets were carried under their hats. They moved on to Curasao, in the Netherlands West Indies, set Up headquarters there. Only Anton's son, Frits, stayed in Eindhoven. Although this action made some people openly suspicious, Philips says that the Nazis put Frits in a concentration camp. Now free, he is back in Eindhoven running the comparatively undamaged plants with the old Philips vigor.

Somehow, while hotfooting it from griddle to griddle around the world, catlike Philips managed to set up its U.S. war plants and to make money. For 1944 the American and British trusts, along with the Curagao company, reported net profits of $1.5 million.

No. 4. The U.S. plants flourished on war contracts. In three years they boosted production to $20 million, and with their well cartelized backing are a potential threat to the big three of U.S. electronics--General Electric, R.C.A., and Westinghouse. But how would Philips' noncompeting, high-price ideas work out in the U.S.?

Last week, Philips' president Otten hastened to explain. Said he: N.A.P. would not manufacture light bulbs. It would stick to such inoffensive items as cathode-ray tubes, diamond dies, etc.

But businessmen wondered. Philips has always flexed its powerful muscles to the limit. And only three weeks ago, it began to flex them again. It terminated a license agreement under which certain American firms had the exclusive right in the U.S. to utilize Philips' patents in the radio and electronics field. Now Philips is free to make and sell anything it wants to U.S. buyers except light bulbs. The best guess is that this will eventually include radios, tubes and television equipment.

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