Philips and AT&T plan restructuring of CommView PACS joint venture

January 30, 1991

Philips and AT&T have agreed to restructure their CommViewjoint venture for the supply of picture archiving and communicationssystems technology. Details of the new structure have not beenfinalized, said Michael P. Moakley, president and CEO of

Philips and AT&T have agreed to restructure their CommViewjoint venture for the supply of picture archiving and communicationssystems technology. Details of the new structure have not beenfinalized, said Michael P. Moakley, president and CEO of PhilipsMedical Systems North America of Shelton, CT. The two firms remaincommitted to PACS, although they have not been satisfied withthe commercial results of their four-year-long effort.

CommView focused initially on the development of comprehensivedigital radiology departments, but hospitals proved reluctantto spend large sums of money on technology that could become outdatedand did not provide a new source of revenue. The two companieseventually acknowledged the need to focus on "miniPACS"solutions targeted at specific department requirements.

The day of comprehensive digital medical imaging will arriveeventually, Moakley said. "There is no doubt it will catchon. The question is when," he said.

The reorganization will create a single research and engineeringeffort for CommView and reduce redundant expenses at both companies.Resources will also be focused more clearly on marketing existingPACS products, Moakley told SCAN.

Coincidentally with the decision to restructure CommView, AT&Tdecided to withdraw its bid for the medical diagnostic imagingsystem (MDIS) project of the Department of Defense (SCAN 2/26/90).The decision to withdraw from MDIS will prevent the diversionof resources from support of existing CommView products, saidStephen G. Chappell, director of AT&T Medical Systems.

"Significant new technology development would have beenrequired in order to meet their (the Defense Department's) requirements.Prospective revenues didn't support the development program wewould have had to put together. It just didn't make good businesssense," Chappell said.

Advanced Video Products of Littleton, MA, and a partnershipof Siemens and Loral Aerospace of San Jose, CA, are two remainingbidders on MDIS. Both AVP and Siemens continued acknowledge thatthe cost of bidding and fulfilling the MDIS contract are extensive,while possible revenues are uncertain.

"It (the MDIS contract) is potentially quite large, butthe request for proposals was worded in an ID/IQ (indefinite delivery/indefinitequantity) manner. They don't have to buy anything they don't want,"said John Perry, vice president of the computer systems divisionat Siemens Gammasonics of Hoffmann Estates, IL. "This isour first military bid response in the PACS business, and it istrue that there was much effort required. It absorbed most ofour senior technical and marketing people for months."

The war in the Middle East has amplified the uncertainty involvedwith MDIS. Many of the personnel behind the project have beendiverted for an indefinite period, said Henry Kunicki, directorof sales for AVP.

"MDIS and anything else (involved with military contracts)takes a back seat to what is happening in the Persian Gulf,"he said. "I had expected movement in other (projects), butalmost everything is on the shelf."

The MDIS contract is a negotiated one, Kunicki said. The militaryis not required to accept a bid and can walk away from the projectif it finds all bids unacceptable, he said. This fact enhancesthe risk for vendors.

THE RESTRUCTURING OF COMMVIEW is in accordance with an effortby Philips to bring its PACS investment in line with market realities,Moakley said.

"We are in the process of resizing the entire PACS effortin proportion to the market opportunity as we now understand it.The market has not proved as big as we had hoped it would be afterfour years of effort. We are bringing a fresh business approachto the entire PACS/PCR (Philips computed radiography) effort,"he said.

The overall medical systems picture for PMSNA was bright lastyear, however, he said. Sales grew by 14% over 1989.

"We had record sales in 1990 and an excellent order performanceacross the board. We see no sign of a downturn in either ordersor sales," Moakley said.

NV Philips, the Dutch parent of Philips Medical Systems International,is engaged in a corporate-wide restructuring effort, however,which will result in a decline in medical staff of about 1500people. Most of the reductions are occurring in Europe. PMSI hasclosed plants in France and Italy and is consolidating operationsbetween Best, the Netherlands, and Hamburg, Germany, Moakley said.

PMSNA, on the other hand, expects to have a net decrease inpersonnel of only 60 this year. The North American unit will actuallybe rebuilding its staff following a trimming of 150 positionsthis month, he said.

"There will be a regrowth in areas, particularly serviceand ultrasound," he said. "I am going to redeploy (resources)into other areas of the business."

PMSNA should finish the year out with over 2400 employees.Fewer cuts were needed in North America this year, because theoperations here were restructured significantly in 1989, he noted.