Philips Electronics of The Netherlands announced that it is setting up a medical equipment joint venture in China, the world's third largest market for hospital tools.
The venture with Neusoft Group of China will focus on medical imaging systems for the Chinese and international markets, and expects to increase revenues 30 percent a year over the next 5 years.
By 2009, the entity expects to make "triple-digit" million dollar revenues.
Medical systems make up more than a third of Philips' profits. Analysts expect the business, which competes with Germany's Siemens and General Electric, to post 240 million euros (approx. U.S. $305.9 million) in operating profit when the group publishes fourth-quarter results on February 10.
The Chinese medical equipment market is currently estimated at $1.2 billion, according to the two companies. Philips' medical systems unit in China is currently growing at around 10 percent a year, in line with the local market, and has around 12-percent market share, Jan Hommen, Philips CFO, told Reuters.
While the two companies will work together in research, development, and manufacturing, they will retain their own brands, sales forces, and service networks for the products.
Mr. Hommen said he would not rule out any further integration in the future, but that the two partners would initially compete with each other. "Every company will have its own design (of products) and customer base," he said.
While Chinese medical equipment market grows at 10 percent a year, cheaper and medium-priced equipment, which the venture will also supply, are expected to grow faster at 15 percent a year.
Tomography and x-ray machines will be the first products the venture plans to manufacture, to be followed by ultrasound and magnetic resonance imaging equipment, as well as archiving and communication systems. Tomography systems, based on an x-ray procedure that uses a computer to produce a detailed 2- or 3-D picture, start at 400,000 euros and can cost up to 1 million euros. Ultrasound equipment, which uses high-frequency sound waves to produce images, starts at 50,000 euros. Cheaper products could do well in the huge Chinese market.
Philips will hold 51 percent of the shares in Philips-Neusoft Medical Systems Co Ltd. and will appoint four out of a total seven board members.
Neusoft Digital Medical, a unit of Neusoft Group, will have the remaining shares and board seats, according to a memorandum of understanding that was signed on Monday. Neusoft will appoint the board's chairman. (Reuters)
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