Dutch health technology company Royal Philips plans to cut about 4,000 jobs, as its new head begins an overhaul of the business that has been hit by legal action surrounding millions of faulty medical devices.
The group said redundancies, amounting to 5 per cent of the workforce, would be made immediately across its global network in a bid to save about €300mn ($296mn) annually, as it also faced pressure from supply chain challenges.
Shares in the company, best known for its branded lightbulbs, fell 3 per cent to €12.93 by late morning in Europe, bringing their decline over the past year to about 68 per cent.
The announcement came as Philips reported a loss of €1.3bn in the third quarter, largely due to a €1.3bn writedown on its respiratory business, which has had to recall or repair more than 5mn machines that were primarily used to assist the breathing of patients suffering from sleep apnoea. The company recorded a net profit of almost €3bn during the same period a year earlier.
The job cuts are the latest sign of the toll that the discovery of a faulty component in the machines has taken on Philips, once one of the world’s leading electronics groups. The controversy, which has resulted in personal injury claims and an investigation by the US Department of Justice, forced the exit this year of chief executive Frans van Houten, who led Philips’s recent shift to health technology.
New chief executive Roy Jakobs, who was promoted this month, said the decision on job cuts was not taken “lightly”.
“My immediate priority is . . . to improve execution so that we can start rebuilding the trust of patients, consumers and customers, as well as shareholders,” he added. “These initial actions are needed to start turning the company around in order to realise Philips’ profitable growth potential.”
As well as the redundancies, Jakobs said Philips was taking action to “improve patient safety and quality management”, as well as improving its supply chain operations.
Philips said it was expecting “prolonged operational and supply challenges”, pointing to the deteriorating global economy and continued uncertainty surrounding Covid-19 measures in China, which have forced its factories into shutdown this year.
The company, which has already twice cut its guidance for full-year sales, is expecting a single-digit decline in revenues during the fourth quarter.
Founded in 1891, Philips had bet that a steer away from consumer electronics and towards health technology would revitalise its business and win over shareholders.
But just weeks after the group announced the sale of its domestic appliance business in March last year, progress was dealt a blow by the discovery that foam used in its respiratory devices could degrade and risk exposing patients to toxic chemicals.