Philips axes thousands amid financial loss
Warns of class action lawsuits and personal injury claims in wake of health product recall
The recently installed CEO at Philips has confirmed a restructuring blueprint that includes making 4,000 staff redundant to reduce overheads following sliding sales and steep losses.
The health tech and consumer electronics maker on Monday estimated the job reductions comprise four percent of its global workforce, and it will book charges of roughly €300 million ($295 million) in the coming quarters.
Roy Jakobs, who took the controls from Frans van Housten on October 15, said his "immediate priority" was to "improve execution so that we can start rebuilding the trust of patients, consumers and customers, as well as other stakeholders."
The first step, he said, is to bolster "patient safety and quality management" related to the recall of Philips Respironics devices, as well as "urgently improving our supply chain operations" and "simplifying our way of working to improve productivity and increase agility."
In June 2021, Philips recalled certain ventilators, BiPAP machines, and CPAP machines due to potential health risks. The Food and Drug Administration (FDA) said the polyester-based polyurethane foam used in these devices to reduce sound can break down and be inhaled. To date, four million replacement devices and repair kits have been produced.
The US Department of Justice, acting on behalf of the FDA, opened talks with Philips in July this year involving a consent decree to resolve the issues. The company said today Philips Respironics is a defendant in several class action lawsuits and individual personal injury claims.
As for Philips' calendar Q3, group turnover was down 5 percent to €4.3 billion ($4.2 billion), comparable order intake was down 6 percent, albeit against 43 percent growth a year earlier, and operating losses were €1.5 billion ($1.47 billion), mainly due to a non-cash goodwill and R&D impairment charge. A year ago, Philips recorded profit from operations of €358 million ($351 million).
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Jakobs said the results were influenced by "operational and supply challenges, inflationary pressures, the COVID situation in China and the Russia-Ukraine war."
The restructuring actions will lead to an "immediate reduction of around 4,000 positions globally across the organization, subject to consultation with the relevant work councils and social partners,” the CEO added.
Jakobs said efforts to improve the supply chain include dual sourcing of components, some supplier consolidation, warehouse footprint rationalization, and with regard to R&D, "shifting to fewer, high impact projects in the innovation pipeline."
The situation for Philips isn't exactly mirrored at other tech companies with less exposure to healthcare. Nonetheless, we suspect there will be more bad news coming out of the industry over the next six months as the global economy slows. Just last week, Microsoft made another wave of layoffs following slowing growth in its Q4 revenues and profits. ®