Philips to cut around 4,000 jobs globally amid mounting losses
Dutch multinational Philips said on Monday that it may slash around 4,000 jobs in an effort to get back on its feet. A massive recall of sleep apnea treatment devices reduced the company's market valuation by 70% last year. In the third quarter, the company reported a net loss of €1.33 billion, compared to a €2.97 billion profit year-over-year.
Why does this story matter?
In 2021, Philips was one of the top five medical device manufacturers in the world. Fast forward to 2022, the company is lingering in the bottom half of the top 10. It is going through a tumultuous time following a shocking recall of millions of sleep apnea devices. Cutting down operational costs is the need of the hour, and job loss is a certainty.
Over 5% of workforce will be fired
Philips will cut around 4,000 jobs or 5% of the workforce as part of streamlining its operations. Newly appointed CEO Roy Jakobs said, "My immediate priority is to improve execution so that we can start rebuilding the trust of patients, consumers, and customers" "This includes the difficult, but necessary decision to immediately reduce our workforce by around 4,000 roles globally."
Philips recalled 5.5 million sleep apnea treating devices
In June 2021, Philips initiated the recall of 3-4 million continuous positive airway pressure (CPAP) machines, bilevel PAP, and ventilators used for the treatment of sleep apnea. The company increased the number to 5.5 million devices in August. The recalled devices had PE-PUR (polyester-based polyurethane) sound abatement foam. The faulty devices put users at risk of inhaling toxic foam or ingesting degraded foam particles.
A €1.3 billion charge has been taken on sleep business
The recall shocked the world and investors alike. The company had to set aside around €885 million in financial provisions. This quarter, the company also took a €1.3 billion impairment charge for its sleep and respiratory care business. The firm has a net loss of the same amount. The write-down is after considering the changing estimates of a proposed settlement with US authorities.
The company's sale is down 5% year-over-year
The proposed terminations are expected to cost €300 million in the coming quarters. The company will create another charge for this. However, it expects to make this money back due to these measures. Philips' problems are magnified by supply chain issues. In the July-September quarter, the sale was slashed by 5% compared to Q3 year-over-year.
