Bedside manner: Philips, already a giant in consumer electronics, bets on healthcare in Latin America for growth.

Synonymous worldwide with television sets, videocassettes and light bulbs, Dutch electronics maker Philips decided a little more than five years ago to shift its focus in a bid to use its century of technological know-how in the healthcare sector.

Armed with a US$5 billion war chest, it diversified and bought rapid growth by making acquisitions in the medical imaging and patient-HEALTHCARE monitoring equipment business. Among other assets, it bought U.K. ultrasound maker Marconi, the world leader, and the medical division of U.S. tech giant Hewlett-Packard. Through these deals, Philips suddenly found itself toe-to-toe with the sector's heavyweights, General Electric of the United States and Germany's Siemens.

"The DNA of our business is our technology. It has been 120 years of research and more than 100,000 patents. That's a big technological footprint," says Marcos Magalhaes, president and CEO of Philips in Latin America. "There is a major problem in the world, and that is to deal with the cost of healthcare, and we have a way: technology." According to Magalhaes, 75% of the cost of healthcare, in general, is corrective in nature, and 25% is spent on preventive care. To tackle the issue of high cost, the view of Philips is to be more preventive so that costly corrective medicine is minimized. Thus the bet on diagnostic imaging. "We are an imaging company. We make televisions, and we were the first to make X-ray machines," says Magalhaes.

As part of the global strategy, the Brazilian unit of Philips is taking a fundamental role in selling equipment, such as ultrasound, magnetic resonance and scanners, in all of Latin America, with a goal of reaching $400 million in sales by the end of 2006. Regionwide, the business grew 30% during 2005, and it is projected to grow another 15% this year.

"The next step for Philips is to find solutions for emerging markets, since we now sell to a global market. Latin America has different needs and we are working to leverage that," Magalhaes says. One challenge is the cost of equipment, which until now was imported from the United States, Europe, Israel or China. A magnetic resonance device, for instance, typically costs $1 million. "It's about trying to find solutions for Brazil's reality, where we have problems with income and with costs. We are finding in Brazil a way to develop more competitive local solutions in order to serve that market," he says.

Major medical institutions don't skimp when it comes to buying equipment, even if it is modern and expensive. The non-profit Hospital do Cancer in Silo Paulo at the beginning of the year installed a $2 million PET-CT Gemini nuclear scanner, which does very high precision diagnostic imaging. The cutting-edge technology allows a scan of the entire body in high definition while reducing examination time to 30 minutes from an hour and a half. "The diagnostic ability of a PET-CT is so efficient that an oncologist can work with 95% certainty of the result, positive or negative," says Eduardo Nobrega, a physician and director of nuclear medicine at the hospital.

Demanding. To break through the cost barrier, a fundamental factor in buying equipment was a proposal to develop oncological techniques, training and knowledge diffusion through sessions hosted by Philips with the hospital. "Putting its equipment here, where things are more demanding and where people are dedicated to the maximum to create new techniques to be applied to this machine, benefits us both: For us, from the diagnostic standpoint, and for Philips, in terms of development," says Nobrega.

Other Latin American clinics are following the Brazilian lead. "Just in Brazil, we have more than 120 engineers to install, maintain and operate equipment," says Ivo Bastiani, vice president of Philips' medical systems division, in Pembroke Pines, Florida. Although Brazil accounts for 50% of sales in the region, Mexico, Puerto Rico, Argentina and Chile also stand out. How much is sold to public or private customers depends on each country. In Brazil, Philips sells more to private healthcare providers, but in Mexico it's a mix in which the public sector has figured more highly in recent years. Puerto Rico and Argentina are completely private, while Venezuela is 100% public.

For the moment, Philips is considering other possibilities to create products that serve the market and it is not discounting more acquisitions or joint ventures in the region. "In Latin America, we are No. 1, at 28% of the market, and we are in the process of examining how to build that business," says Bastiani.

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CARLOS ADESE * SAO PAULO