Philips stops U.S ventilator sales in deal over faulty devices; Cut 7,600 jobs in 2023

Philips has stopped selling ventilators and sleep apnea breathing-assist machines in the United States as part of a settlement agreement with the U.S. Food and Drug Administration, the Dutch health technology company announced with its annual figures on Monday. Additionally, Philips shed over 7,500 jobs last year, nearly 10 percent of its workforce amid another loss-making year as it continues to deal with the fallout from its faulty devices. The company had a 463 million euro loss last year, including a 115 million euro loss after earmarking more money to handle the recall from its Respironics division.

The company set another 363 million euros aside for damages as part of this latest step in the massive recall that Philips started in 2021. That year, Philips recalled some 5.5 million of the first-generation DreamStation sleep apnea devices after discovering that the sound-dampening foam in the machines could crumble and enter users’ airways if the wrong cleaning agent was used on the device.

The crumbling foam is carcinogenic. The recall has cost Philips hundreds of millions of euros, and several damage claims and possible settlements are still looming in the United States.

Philips is still selling its CPAP and BiPAP sleep therapy machines in other territories. It will continue to service its existing sleep and respiratory devices in the U.S. and will still sell their accessories and replacement material needed to keep the machines functioning. But it will not sell any new machines “until the relevant requirements of the consent decree are met,” the company said.

According to the company, the decree, which is currently being finalized, will provide Philips with “a roadmap of defined actions, milestones, and deliverables” to demonstrate that its Respironics department complies with regulatory requirements in the United States. Philips has set aside 363 million euros to address the consent decree, which it describes as a “multi-year plan.”

Once the settlement is finalized, the authorities will submit it to the U.S. court for approval. Philips will reveal more details once that has happened, the company said.

CEO Roy Jakobs stressed that patient safety and quality is Philips’ highest priority. “Resolving the consequences of the Respironics recall for our patients and customers is a key focus area, and I acknowledge and apologize for the distress and concern caused,” he said. “We are fully committed to complying with the consent decree, which is an important step and provides a clear path forward.”

Job cuts total 9.8 percent of global workforce

When presenting its annual report last year, Philips announced plans to slash its headcount by at least 3,000. That figure grew further, and eventually, the company acknowledged it wanted to eliminate a total of 10,000 jobs by the end of 2024 to reduce operating costs.

Over the course of the year, Philips reduced the number of workers by 7,577, or roughly ten percent of its global workforce. Philips ended the year with the equivalent of 69,656 full-time employees. That was down from 77,233 a year earlier.

The company shed about 1,100 jobs in the fourth quarter of the year. More than 3,500 positions were lost in the first quarter, another 2,200 in the second quarter, and roughly 800 in the third quarter.

The job losses has hit a wide-range of roles as Philips tries to simplify its organization, consolidate roles, and streamline its planning teams. The company has tried to reduce costs in corporate research, warehousing, transportation, and consulting. It wants to further focus on product research and development.

"Our new operating model enabled more effective ways of working across the company, and drove significant productivity improvements," the company's CEO said in a statement.

Philips hit with a 463 million euro loss; Executives focus on improvement

Philips ended the year taking a 463 million euro net loss, compared to a 1.6 billion euro net loss the previous year. The loss from operations equaled 115 million euros in 2023, compared to a loss on operations of over 1.5 billion euros in 2022. The company argued it was on a path back to profitability in the fourth quarter, when operations resulted in a net gain of 24 million euros Phillips reported that revenue from sales reached 18.2 billion euros in 2023, an increase of about 7 percent compared to the previous year.

“Net income in 2023 improved, driven by higher earnings, offset by 575 million euro Respironics litigation provision,” the company explained in its annual results. That contrasted against a loss of about 1.53 billion euros in 2022, including a 1.5 billion euro charge for goodwill and research and development impairments.

“Income from operations improved to a loss of 115 million euros, including charges of 575 million euros Respironics litigation provision, 363 million euros in connection with the Respironics consent decree, and 224 million euros Respironics field-action running remediation costs,” Philips added.

"While there is more work to be done, the progress we achieved in a volatile world lays a solid foundation for sustained performance," Jakobs claimed. Over the course of the year, customer orders fell five percent compared to 2022, though that showed signs of improvement in the last quarter.

"We saw strong growth throughout the year based on the actions we have taken to improve supply chain reliability and simplify our organization. Our order book is strong, and we are focused on improving order intake."