Popular Dutch company Philips on Monday announced that the health technology company will scrap around 6,000 jobs to restore the lost profits following a recall of respiratory devices that knocked off 70% of its market value.
With this, Philips joined the queue of companies that laid off their employees. The company will cut half of the jobs this year and the other half will be released by 2025.
The organization announced its reduction in the workforce last October by 5%, which accounts for a reduction of 4000 jobs as it struggles with the loss from the recall of millions of ventilators that were used to treat sleep apnoea. It was worried that the foam used in the machines could become toxic later.
The reduced workforce would cover a low teen profit margin by 2025 as measured by adjusted EBITA which stands for earnings before interest, taxes, and amortization.
“Philips is not capitalizing on the full potential of strong market positions as it faces a number of significant operational challenges,” new Chief Executive Officer Roy Jakobs said.
“The simplified organization should also improve patient safety and quality and supply chain reliability”, he added.
He further stated that the company will invest 9% of sales in research and development, but will focus on “fewer, better resourced, and more impactful projects”.
Amsterdam-based Philips also announced a fourth quarter adjusted EBITA of around 651 million euros, which is a stable source from 647 million euros last year.
Many analysts initiated a poll that predicted core profit may drop to almost 428 million euros.
As the supply chain eased, sales edged up to 3% in the last months of 2022. Philips is struggling with a shortage of components that have made them decrease sales by 3% over the last year.
Philips informed us that the supply chain remained difficult despite the advancement in the last quarter.
This was anticipated to lead to low-single-digit identical sales growth on a high-single-digit margin in 2023, it said.
The outlook shuts out the effect of ongoing discussions with the U.S. Department of Justice on a settlement following the recall, and of ongoing litigation and inquiries.