Philips cuts another 6,000 jobs as CPAP recall, supply chain snags send 2022 sales down 3%

Philips cuts another 6,000 jobs as CPAP recall, supply chain snags send 2022 sales down 3%

Another 6,000 jobs are on the chopping block at Philips as the devicemaker continues to grapple with the negative impacts of a still-suffocated supply chain, the ongoing recall of 5.5 million of its respiratory devices and a handful of other global issues.

In tandem with the release of its 2022 earnings report Monday, Philips unveiled a host of operational shifts aimed at cutting costs and revamping revenues.

At the top of the list is the workforce reduction of thousands additional jobs around the world, which CEO Roy Jakobs called “difficult but necessary” in Monday’s release. The cuts will be staggered through 2025, with half taking place this year. When combined with the 4,000 layoffs Jakobs announced in his first few days on the job last fall, Philips will have cut nearly 13% of its workforce, which totaled 78,000 workers in its most recent annual report.

The growing roster of layoffs comes as Philips reports what Jakobs described as another “very difficult year” in its 2022 earnings report.

For the full year, the Dutch devicemaker took in 17.8 billion euros, or around $19.4 billion, in total sales—about 3% lower than 2021’s haul. The company attributed the decline not only to its CPAP machine recall and long-lasting supply chain issues but also to falling sales in China and the impacts of the Russian war in Ukraine. Alongside the sales slip, Philips also registered a 3% decrease in its order intake, well below the 4% increase it had calculated in 2021.

With its earnings severely stanched, the company reported an operating loss of nearly 1.53 billion euros ($1.67 billion) for the year. Most of that was due to the 1.5 billion euros’ worth of noncash goodwill and R&D impairment charges that Philips had to take in the third quarter, the bulk of which was linked to the lower-than-expected financial outlook for its recall-weary Respironics division.

Meanwhile, a year prior, Philips had reported a positive operating income of 553 million euros ($603 million)—meaning this year’s total marks a nearly 400% plummet from 2021.

In addition to the layoffs, Philips’ sales-boosting plan includes recommitting to R&D: The company plans to devote 90% of its R&D resources to its internal businesses, compared to 70% last year, shifting much of its corporate innovation work to the business segment level. Those resources will also be focused on “fewer, better resourced, and more impactful projects” than before, according to Philips.

As for the global respiratory device recall, Philips is aiming to wrap up its repair-and-replace and testing programs this year while also dealing with the widespread class-action lawsuits in progress against the company and the U.S. Department of Justice’s investigation into the issue, as well as the department’s proposed consent decree—an order that could potentially stop operations at certain Philips facilities but about which neither Philips nor the department have offered any additional details.

To prevent any similarly disastrous results from future recalls, Philips added that it will be prioritizing patient safety and quality in all of its upcoming innovation work. The company said it will also “step up accountability for patient safety and quality,” including by improving employee training and simplifying processes related to quality and compliance checks.

With that operational overhaul in place, Philips is expecting to see its annual sales return to growth by 2025, with year-over-year increases in the mid-single digits.

“When I took over as CEO in October 2022, I said that our priorities are first to further strengthen our patient safety and quality management and address the Philips Respironics recall; second, to improve our supply chain reliability to convert our order book to sales and improve performance; and third, to simplify how we work to increase agility and productivity,” Jakobs said Monday. “This is a step-by-step improvement journey supported by our leading market positions, extended customer base, meaningful innovations, ecosystem partnerships, strong brand and talented employees.”

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