Company is going to cut 6,000 jobs for profit

Dutch health technology company Philips on Monday said it will cut 6,000 jobs to restore profitability after a recall of ventilators that has eroded 70% of its market value, Reuters reports.

Half of the job cuts will occur this year, the company said, adding that the other half will be realized by 2025.

The new reorganization comes on top of a plan announced last October to cut its workforce by 5% or 4,000 jobs as it grapples with the effects of the recall of millions of ventilators used to treat sleep apnea over concerns that foam in its machines used can become toxic.

The reduced workforce should result in a low-teen profit margin by 2025, as measured by adjusted earnings before interest, taxes, and depreciation, and a mid-to-high-teen margin after that year, with comparable sales averaging single digits continue to grow.

“Philips is not leveraging the full potential of strong market positions as it faces a number of significant operational challenges,” said new Chief Executive Officer Roy Jakobs.

The simplified organization should also improve patient safety and quality and supply chain reliability, he added.

The company will continue to invest 9% of sales in research and development, but will focus on “fewer projects with better resources and more impact,” he said.

Amsterdam-based Philips also reported fourth-quarter adjusted EBITA of 651 million euros ($707.18 million), broadly stable from 647 million euros a year earlier.

In a poll compiled by the company, analysts had on average predicted that core profit would fall to 428 million euros.

Comparable store sales rose 3% in the final months of 2022 as ongoing supply chain issues eased.

A shortage of components has plagued Philips throughout the year, causing sales to fall by 3% for the whole of 2022.

Despite the improvement in the last quarter, Philips said the supply chain remained challenging and would only improve gradually.

This was expected to lead to low-single-digit comparable store sales growth with a high-single-digit margin in 2023, the company said.

The outlook excludes the impact of ongoing discussions with the US Department of Justice regarding a settlement following the recall, as well as ongoing litigation and investigations.