Device recall and supply chain issues prompt Philips to announce layoffs
Philips will focus on demonstrating the trust hospital leaders have in its ability to help them enhance health outcomes and lower costs.
Photo: Susan Morse
Technology company Philips plans to cut an estimated 5% of its workforce, about 4,000 positions, due to losses caused by the recall of a sleep apnea product as well as supply chain issues, according to information released by the CEO in third-quarter results.
The layoffs are expected to be concentrated in the United States and the Netherlands.
The Amsterdam-based conglomerate has a large healthcare segment, with the United States representing one of its largest markets.
In June 2021, the U.S. Food & Drug Administration issued a recall of Philips' Respironics ventilators, BiPAP machines and CPAP machines.
The massive recall slashed around 70% off the company's market value in the past year, according to Reuters.
Roy Jakobs, who was appointed president and CEO of Royal Philips on October 15, said in the quarterly report, "We face multiple challenges and our Q3 2022 performance reflects this. Although Philips' strategy and solutions resonate with our stakeholders, we have not lived up to their expectations in recent years."
The company will address various facets of the Philips Respironics recall, improve supply chain operations so it can deliver on its strong order book, and simplify its way of working to improve productivity and increase agility, Jakobs said.
"This includes," he said, "the difficult, but necessary decision to immediately reduce our workforce by around 4,000 roles globally, which we do not take lightly and will implement with respect towards impacted colleagues. These initial actions are needed to start turning the company around in order to realize Philips' profitable growth potential and create value for all our stakeholders."
Its performance in the quarter was impacted by operational and supply challenges, inflationary pressures, the COVID-19 situation in China and the Russia-Ukraine war, according to the earnings report. This resulted in a 5% comparable sales decline.
More information will become available in the fourth-quarter results in January 2023, Jakobs said.
WHY THIS MATTERS
Philips has a strong reach into the U.S. healthcare market and with hospitals.
Philips will focus on innovation and customer partnerships including demonstrating the trust hospital leaders have in Philips' ability to help them enhance health outcomes, lower the cost of care, and improve patient and staff experience, according to the quarterly report.
The company has signed multiple new long-term strategic partnerships across the world, including a 10-year agreement with a large university hospital in Japan for the expansion of its eICU program for centralized, remote surveillance of high-risk ICU patients.
Philips signed several agreements in China, including with private hospitals Suzhou Kowloon Hospital and Wuhan Asia Heart Hospital, to provide advanced diagnostic imaging and image-guided therapy systems to advance patient care.
It has expanded its leading ultrasound portfolio with the FDA market clearance for its new Ultrasound 5000 Compact system to deliver cart-based premium image quality in compact form for point-of-care, cardiology, general imaging, and obstetrics and gynecology applications.
Philips said it continues to successfully expand into ambulatory care. Philips Mobile Cardiac Outpatient Telemetry is crucial in detecting arrhythmias and providing data that allows care teams to intervene quickly and decisively, the company said.
THE LARGER TREND
On August 16, the FDA updated the information about medical device reports received from May 1 to July 31 associated with the breakdown of the polyester-based polyurethane foam used in the Philips Respironics ventilators, BiPAP machines and CPAP machines included in the June 2021 recall.
Philips Respironics continues to make progress with the repair and replacement program and the comprehensive test and research program for the CPAP, BiPAP and mechanical ventilator devices. To date, approximately 4 million replacement devices and repair kits have been produced. Philips Respironics aims to complete around 90% of the production and shipments to customers this year.
The U.S. Department of Justice, acting on behalf of the FDA, began discussions with Philips in July regarding the terms of a proposed consent decree to resolve the identified issues.
During HIMSS22, Jakobs, then business leader of Connected Care at Philips, gave his top predictions for the future of healthcare systems over the next three years. He said, 40% of providers would shift 20% of hospital beds to the home; a common marketplace will connect all consumers, payers and providers; 10 major national employers would go to direct contracting; and three-quarters of health systems would suffer from cybersecurity risks.
Twitter: @SusanJMorse
Email the writer: SMorse@himss.org
