NETHERLANDS — Philips, a Dutch health technology company has announced that it would cut 6,000 jobs over the next two years to restore profitability following a recall of respiratory devices that cost the company 70% of its market value.
According to the company, half of the job cuts will take place this year, with the other half taking place by 2025. The layoffs represent about 13% of Philips’ global workforce.
The new reorganization follows a plan announced in October to reduce its workforce by 5%, or 4,000 jobs, as the company deals with the fallout from the recall of millions of ventilators used to treat sleep apnea due to concerns that the foam used in the machines could become toxic.
The reduced workforce should result in a profit margin (adjusted EBITA) in the low teens by 2025, and a margin in the mid-to-high teens beyond that year, with mid-single-digit comparable sales growth throughout.
The company, which has its headquarters in Amsterdam, is reeling from a worldwide recall of sleep apnea machines and economic headwinds including COVID-related issues in China and the war in Ukraine.
Meanwhile, competitor ResMed has struggled amid supply chain challenges to fill the resulting continuous positive airway pressure (CPAP) shortage.
ResMed CEO Mick Farrell recently said that patients in some parts of the world have to wait up to 12 weeks to receive continuous positive airway pressure (CPAP) after a sleep apnea diagnosis.
CEO Roy Jakobs said 2022 was “a very difficult year for Philips and our stakeholders, and we are taking firm actions to improve our execution and step up performance with urgency.”
He said the job cuts will significantly reduce costs and make Philips a “leaner and more focused organization.”
Jakobs added that the streamlined organization should improve patient safety, quality, and supply chain reliability.
The reopening of China will potentially increase product demand in 2023, according to Jakobs, though the company is still facing market challenges due to factors such as employee sickness and hospitals being too overburdened to install its equipment.
Despite its struggles, Jakobs said he embraced the challenges and that he was excited about the company’s future.
He said he needed to take firm action so that Philips could better execute and focus on its growing HealthTech business.
The company announced expected growth in 2023. However, that growth excludes the potential financial impact of the recall.