Philips to Cut 4,000 Jobs as Big Recall, Supply Snags Hit Earnings

News of the cuts came as Philips swung to a net loss of €1.3 billion in the third quarter, mainly driven by a previously disclosed write-down of its sleep and respiratory-care business. That compares with a profit of almost €3 billion in the same period last year, boosted by the sale of its domestic appliances business. Philips said third-quarter sales fell 5% to €4.3 billion.

“Although Philips’ strategy and solutions resonate with our stakeholders, we have not lived up to their expectations in recent years,” said Chief Executive

Roy Jakobs.

The longtime Philips employee took the top job on Oct. 15, succeeding

Frans van Houten.

Philips, which sells products including MRI scanners and ultrasound machines, said sales had been hit by persistent supply issues stemming from the pandemic and more recently, Russia’s war in Ukraine.

The company said it expected prolonged operational and supply challenges, a worsening economic environment and continued uncertainty relating to Covid-19 measures in China.

Consequently, Philips lowered its full-year outlook, saying it now expects sales to decline in the mid-single-digits, compared with its previous forecast of 1-3% sales growth. It also said its profit margin would likely be weaker than expected.

Philips said it would take action to strengthen its supply chain, such as increasing dual-sourcing, and overhaul its research and development strategy to focus on fewer, bigger projects.

Philips’ struggles with supply-chain disruption and a weakening economic outlook come as the company contends with a huge recall of breathing-aid machines. It is in the midst of recalling 5.5 million devices following reports that an internal sound-dampening foam could degrade. That spurred concerns that the degraded foam could release harmful gases or particles into the lungs of users.

Subsequent testing, spanning devices with and without visible foam degradation, has found no evidence that dangerous levels of harmful gases or particles are released by affected devices, although testing isn’t yet complete.

Most of the affected devices are CPAP and BiPaP machines, typically used to treat sleep apnea, although some ventilators are also included in the recall. The recall began in June last year and the company said it had so far repaired or replaced around 4 million affected units.

The recall led to inspections from the Food and Drug Administration, whose findings suggested that Phliips had for years taken inadequate action in response to complaints relating to foam degradation.

Philips said that in July it entered discussions with the U.S. Department of Justice on behalf of the FDA and that the recently disclosed €1.3 billion write-down included the company’s latest assumptions relating to a potential settlement arising from those talks.

Write to Denise Roland at [email protected]