NETHERLANDS — Philips, a Dutch medical device manufacturer, has announced that it will lay off 4,000 workers after suffering a massive financial loss due to faulty sleep respirators.

According to the company, the 1.3 billion euro (US$1.28 billion) write-down for the defective machines resulted in a net loss of the same amount.

Philips has been plagued by faulty devices that put users suffering from sleep apnea at risk of inhaling toxic foam.

The company’s previous CEO stepped down earlier this year after leading the company’s 12-year transition from consumer electronics to medical device manufacturer.

Philips had already set aside 900 million euros (US$887.5 million) for the defective respirators and had warned two weeks ago that the 1.3 billion-euro (US$1.28 billion) charge would be taken this quarter.

Philips CEO Roy Jakobs said that the difficult move is taken to improve productivity and agility, IANS reported.

He added that these initial actions are needed to start turning the company around to realize its profitable growth potential and create value for all the stakeholders.

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

According to Philips, the severance and termination-related costs will be around 300 million euros ($295 million).

Jakobs took over from Frans van Houten earlier this month, prompting the restructuring. Jakobs is cutting R&D, consolidating suppliers and warehouses, and implementing dual component sourcing.

He was tasked with turning around the company’s Connected Care business in early 2020, as well as managing the response to the coronavirus pandemic and the growing issues surrounding the recall of medical devices used to treat sleep apnea.

The company posted a net profit of three billion euros (US$ 2.96 billion) in the third quarter last year, but that was boosted by the sale of its domestic appliances business.

Comparable sales fell 6% to 4.3 billion euros (US$ 4.24 billion) in July-September, with Philips reporting that supply chain issues were worse than expected and would continue to weigh on sales in the final months of 2022.

Jakobs stated that his top priorities were repairing the company’s reputation by completing the recall as soon as possible and resolving supply chain issues.

He cited component shortages, such as microchips, as well as unexpected stops and starts in availability.

Philips’ market value has dropped by around 30 billion euros (US$29.6 billion) since it shocked investors in June last year by recalling 5.5 million ventilators used to treat sleep apnea due to concerns that the foam used in the machines could become toxic.

Additional steps to address challenges

In addition to the restructuring and layoffs, Philips announced the following actions to improve its performance:

It is addressing supply chain issues through dual sourcing, supplier consolidation, warehouse footprint rationalization, and other methods.

When it comes to R&D, Philips is focusing on fewer high-impact projects in the pipeline.

Philips is attempting to improve quality control by improving processes, expanding capabilities, and improving product management.

In addition, the company is securing a €1 billion (US$1 billion) credit facility to strengthen its liquidity even further.

Furthermore, Philips is returning to the original settlement dates of 2023 and 2024 for a share repurchase program, rather than 2022 as previously announced.

Philips now anticipates a mid-single-digit decline in comparable sales in Q4 2022.

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