Philips' Lightbulb Moment

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And consumer electronics—plagued by savage Asian price competition—will continue to be "lackluster," says UBS, with no growth next year.

Lighting, on the other hand, enjoys renewed attention because of environmental concerns. Green awareness is spurring the transition away from traditional bulbs, which not only contribute heavily to carbon emissions—thanks to their electricity consumption—but also add significantly to air conditioning bills in summer months. Philips reckons that Europe could meet its 2010 Kyoto carbon dioxide targets in one fell swoop if all traditional lighting were switched to energy-efficient alternatives. The energy saved would equate to 50 million barrels of oil per year.

The promise of such large energy savings is starting to resonate with Philips' customers. In the first half of this year, sales of energy-efficient lighting products grew at twice the rate of the lighting division as a whole, and for the first time accounted for almost 50% of its sales. Genlyte, which reported 2006 net sales of $1.6 billion, should help accelerate growth even further. Its products are promoted through architects, engineers, contractors, and building owners, giving Philips new access to professional customers in the U.S.

A Bright Outlook for Philips

Though LED-based lighting systems cost more than their conventional counterparts, Philips says the energy savings mean they pay for themselves in two to three years. Plus, LEDs can do wondrous things that incandescent bulbs can't, such as change color or be implanted into walls and furniture.

All told, Philips' new lighting push is helping it move ahead of GE and the Osram lighting unit of Siemens (SI). It's the latest step in a reorganization announced in September that will streamline the company into just three major units (BusinessWeek.com, 9/10/07). Philips says the reorganization should help boost margins and double earnings per share by 2010. If the lighting business turns out to be as fast-growing as Philips hopes, going back to its roots may prove to be a very bright idea.

Schenker is a BusinessWeek correspondent in Paris.