Philips to cut 6,000 more jobs as product recall costs mount

ROYAL Philips is cutting another 6,000 positions, or around 8 per cent of the total, as the maker of medical equipment is reducing expenses while wrestling with costly recalls of some of its consumer products.

The reductions, half of which will be implemented in 2023, come on top of 4,000 job cuts already announced last year, a plan that Philips said would result in about 300 million euros (S$429 million) in costs in the coming quarters.

“That’s a sizeable and impactful measure, but we see it as necessary to address the rising cost across the company and the world, and also to make us more agile,” chief executive officer Roy Jakobs said on Monday (Jan 30).

The chief executive officer is bracing for potential charges linked to the manufacturer’s sleep-therapy devices. Philips started its first recall of the products in June 2021, and has set aside about 885 million euros after researchers linked their degrading foam to cancer and respiratory issues. The company said on Monday that it is increasing the provisions by 85 million euros.

Philips is joining a growing number of manufacturers that are cutting costs to deal with supply-chain turmoil and inflation. Chemical company Dow said last week that it is reducing around 2,000 positions to offset rising energy expenses. Germany’s BASF said last year that it would adjust its European production network after domestic facilities began to lose money.

Philips expects to deliver low-single-digit comparable sales growth and a high-single-digit adjusted operating profit margin this year as supply chains improve. The company also reported better-than-expected sales and operating profit in the fourth quarter.

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Tests carried out by Philips showed that its recalled products are unlikely to result in “an appreciable harm” to the health of patients, the company said in a December statement that sent shares surging at the time.

Jakobs, who replaced long-time chief executive officer Frans van Houten in October, said that he hopes to get more details on the impact of any potential litigation in the second half of 2023.

“When we have that detail, we will immediately come forward,” he said. “We will make sure that we put all the effort to get this to the best resolution.” BLOOMBERG