What's going on?

Philips agreed to sell its domestic appliances business on Thursday, as it looks to make a fresh-faced start with conglomerate skeptics (tweet this).

 

What does this mean?

Philips became a household name for its shavers, lightbulbs, and televisions, but that reputation has been on the way out: the company sold off its lighting business back in 2016, and it�s been cutting back on its other divisions ever since. These days, it�s more interested in making healthcare technology, like in-demand respiratory machines and remote medical care equipment. And on Thursday, the company announced the final nail in the coffin of its former self: it�s selling its kitchen, coffee, and home care appliances business to a Chinese private equity firm.

Why should I care?

For markets: The sum isn�t greater than its parts.

Conglomerates are big companies that operate several entirely unrelated businesses. But despite the slanderous rumors you might hear, bigger isn�t always better. See, investors aren�t convinced that conglomerates can manage various offshoots better than they can a �pure-play� business. That means a multifaceted company isn�t always as valuable as the sum of its parts, and investors essentially get what�s known as a �conglomerate discount�. But Philips looks like it�s had some luck reducing that discount so far: the company is more profitable since it sold off its lighting business, and its shares have doubled too.

Zooming out: The telehealth industry might be worth a look.

Less of a focus on consumer products should free up Philips� time to concentrate on healthcare technology � specifically, on remote medical care equipment. That market saw a sharp acceleration in growth during the pandemic, with the number of US patients using telehealth services going from 11% in 2019 to 46% by the middle of 2020. Consulting firm McKinsey even reckons the industry�s pre-pandemic revenue of $3 billion has the potential to grow to as much as $250 billion.