Philips Ultrasound stops production of P700 in favor of HP collaboration

New premium scanner to be unveiled this fall

Philips Ultrasound has quietly closed the doors on its manufacturingoperations in Santa Ana, CA. Philips has also stopped productionof its flagship P700 SE ultrasound system as a part of sweepingchanges that will culminate this fall with the introduction ofa premium ultrasound system designed by Philips and joint-venturepartner Hewlett-Packard.

By Sept. 1, more than 100 employees representing half the workforce at Philips Ultrasound's Santa Ana headquarters will havebeen laid off, according to William Joyce, general manager. Abouthalf the layoffs relate to manufacturing. The other half stemfrom the reassignment of administrative functions to Philips MedicalSystems North America's headquarters in Shelton, CT.

Personnel, record-keeping and financial services were amongthe services shipped to Shelton, Joyce said.

"We scaled back core infrastructure and reduced layersof management to become a more cost-effective and entrepreneurialorganization," Joyce said, during an interview for DiagnosticImaging's coming report, The U.S. Diagnostic Imaging Market: GlobalPerspective.

Management disclosed its restructuring plan to the Santa Anastaff in January. Most of the layoffs were completed by June 30to provide employees with time to find other work.

While streamlining manufacturing and administration, PhilipsUltrasound is strengthening its worldwide dedicated sales force,according to Joyce. Without disclosing specifics, a substantialnumber of new salespeople and applications specialists have beenadded, he said.

Although the Santa Ana facility has stopped production, engineers,who make up more than half of the surviving staff, continue todevelop software and hardware for P700. Ongoing R&D is conductedat Philips' Paris-based ultrasound laboratory.

"We will support P700 for the foreseeable future,"Joyce said.

The P700 was phased out in favor of a new high-performanceradiology ultrasound system designed jointly by Philips and Hewlett-Packard.The development team for the new system is composed of engineersfrom both companies. The team was formed after a joint technologydevelopment agreement was signed by the companies in late 1992(SCAN 11/18/92).

The still-unnamed system is the first tangible product fromthat collaboration. Hewlett-Packard will manufacture the system,most likely at its Andover, MA, plant.

The strategic alliance between Philips and Hewlett-Packardreceived positive reviews when it was announced in 1992. Hewlett-Packardis the dominant player in echocardiography, with over a 50% marketshare. It lacks a presence in radiology ultrasound, however, andhas fewer international outlets than Philips.

Philips has a worldwide distribution and sales network anda unique ultrasound asset in its CVI-Q (color-velocity imagingquantification) technology. But Philips has had little successrecently in capturing ultrasound market share in the U.S. or internationally.

Both companies see the joint-venture relationship as a meansto leverage off each other's strengths to improve their competitivepositions.

"We have had significant exchanges in our developmentgroups working on a variety of areas," Joyce said. "Bothcompanies saw economies of scale in joining manufacturing."

Joyce disclosed few details about the new scanner, other thanto note that CVI and CVI-Q -- a time-domain method of measuringblood volume and velocity -- will continue to play a featuredrole in the Philips product line. CVI-Q was well received afterPhilips began shipping it on P700 scanners in February, Joycesaid. CVI-Q clinical trials are under way at 12 academic researchcenters in the U.S.

Development efforts shifted to P700 after Philips discontinuedits high-performance Platinum series scanner in late 1992 (SCAN6/30/93). P700 evolved from the same basic platform as Platinum.The system's cost was reduced by about $35,000 by dropping ergonomicfeatures such as Platinum's floating console and automatic retractabletransducer cables.

The collaborative effort with Hewlett-Packard in 1992 was aturning point in Philips' campaign to capture 15% of the worldultrasound market by mid-decade. The partnership allowed Philips,soon after the deal was signed, to drop plans to double its SantaAna work force. Personnel levels were trimmed to 12% after thepartnership was announced.