Philips to cut 5% of workforce as new CEO acts to counter falling sales

Philips’ (PHG.AS) new CEO announced plans on Monday to cut around 4,000 jobs following falling sales and after a massive recall slashed around 70% off the Dutch medical equipment maker’s market value in the past year.

“We have now had five quarters of declining sales, declining profit, and now… (in the third quarter) we also have become loss-making,” CEO Roy Jakobs, just a week into the role, said in a telephone interview.

“You really need to work your cost base to stay competitive and to support your profit … I am also looking at simplifying the organization.”

He described the layoffs, which will be concentrated in the United States and the Netherlands and primarily affecting business lines with falling sales, as “unfortunate, but necessary.”

He said the company is seeing demand slowing rapidly in China and to a lesser extent in Western Europe due to inflation, with North America “still holding strong.”

Jakobs took the top job as the company grapples with the fallout of its costly recall of respiratory machines and ongoing supply chain problems that led to an Oct. 12 profit warning.

The cuts represent just over 5% of the company’s workforce based on last year’s total of 78,000.

The company said it expected the reorganisation to cost around 300 million euros ($295.41 million) in the coming quarters.

It reported a net loss of 1.3 billion euros for the third quarter due to a write-down in the value of its Sleep & Respiratory Care business which makes the recalled machines.

Philips is in talks with the U.S. Department of Justice on a settlement following the recall.

Comparable sales dropped 6% to 4.3 billion euros in July-September as Philips said supply chain problems were worse than anticipated and would continue to weigh on sales in the last months of 2022.

Jakobs said his top priorities were repairing the company’s reputation by ensuring the recall is completed as soon as possible, and resolving the supply chain problems. Those involve both shortages of components such as microchips, as well as unexpected stops and starts of availability, he said.

Philips has lost around 30 billion euros of its market value since it shocked investors in June last year by recalling 5.5 million ventilators used to treat sleep apnoea, over worries that foam used in the machines could become toxic.

($1 = 1.0155 euros)