Neusoft Group Ltd. (Neusoft) of China and Royal Philips Electronics (Philips) of the Netherlands today announced the signing of a memorandum of understanding to set up a manufacturing and R&D joint venture for medical systems.

The joint venture, to be called Philips-Neusoft Medical Systems Co. Ltd., will focus on developing and manufacturing medical imaging systems for the Chinese and international markets. The joint venture expects to expand its revenue by approximately 30 percent annually over the next five years. Financial details of this transaction will not be disclosed.

Philips-Neusoft Medical Systems Co. Ltd. will be headquartered in Shenyang, in northeastern China, with Philips holding 51 percent and Neusoft Digital Medical Company – a subsidiary of Neusoft Group Ltd.–49 percent of the share capital. Philips will have four seats and Neusoft three seats on the joint venture's board of management, with Neusoft appointing the chairman of the board. Once approval for the joint venture is granted by the Chinese government, Philips-Neusoft Medical Systems Co. Ltd. will begin developing and manufacturing computed tomography (CT) and x-ray equipment. This will be followed by ultrasound and magnetic resonance imaging (MRI) equipment, as well as picture archiving and communication systems (PACS) – products that are used to store radiology images. Both parties will retain their own brands, sales forces and service networks. The R&D and manufacturing joint venture represents a breakthrough for Philips' medical activities in China, since it is Philips' first investment in the country through which R&D and manufacturing of a broad portfolio of medical equipment can be carried out.

Both Philips and Neusoft recognize the potential for growing their medical business in China. The Chinese medical market, currently valued at USD 1.2 billion, is the world's third largest, and is growing at approximately 10 percent per year. Furthermore, it is expected to overtake Japan in the next six to eight years, fueled in part by a strong demand for economy- to mid-range products. This segment of the market is growing in China at approximately 15 percent per year. The joint venture will also target international markets, such as developing markets in Asia, South America and Eastern Europe, where there is high demand for economy- to mid-range products.