Channel partners are scrambling to establish portfolios in the healthcare market. Gartner predicts that worldwide enterprise IT spending in the healthcare vertical will reach nearly $3.8 billion by 2020, providing huge opportunities for partners. Traditional VARs that supply tablets, scanners and other hardware for the industry had better start looking to transition to services as the market is almost at capacity for equipment, but software providers are still in somewhat short supply. To now, GE and, to a lesser extent, Siemens have provided most of the options utilized by the channel, but Philips is now making a big investment in software to help doctors and facilities harness data, the 'holy grail' of future revenue streams.
Royal Philips NV plans to roll out software designed to help doctors improve the diagnoses of diseases such as cancer as it challenges General Electric Co. and Siemens AG for a bigger share of the lucrative health-care solutions market.
The apps will improve interpretation of data such as a sequence of scans, with different colors showing up minor differences easily be missed with the naked eye, Chief Executive Officer Frans van Houten said in a media briefing. It’s a market that could potentially grow twice as fast as Philips’ traditional business supplying scanners and other big-ticket medical gear. Software currently accounts for about 3 billion euros ($3.1 billion) of the 17 billion euros in sales generated by Philips.
“The world does not need much more capacity in scanners, but is especially in need of better interpretation of data,” Van Houten said, adding that currently about half of diagnoses given to patients are incorrect. “This is the holy grail that we all are after.”
Van Houten earlier this month told investors at a capital markets day in London that they should increasingly consider Philips a provider of software, as opposed to the iconic lightbulbs, TVs and CD players that have been core products during the company’s 125-year history. Philips has exited traditional businesses to focus on health care, and is streamlining its factory network and increasing spending on research to close the gap on its rivals.
The Dutch company’s 12-month trailing 8.9 percent operating margin in healthcare sales lags behind GE Healthcare’s 16.9 percent and Siemens’ 15.7 percent, according to Bloomberg Intelligence.
GE is bundling software apps on its health-care cloud platform capable of linking imaging machines and patient devices. Siemens also made the first steps in the area of computer-assisted detection with software that analyzes pictures for typical patterns and irregularities and support radiologists in their analysis, including in mammography and lung screening.
For Philips, the diagnosis software is just one product to come out of a 300 million-euro pool of cash that’s ring-fenced for developing breakthrough products. In total, Philips spends about 1.7 billion euros on R&D annually, as Van Houten aims to expand its product base internally rather than by buying companies to become bigger in the informatics business.