Sleep apnea device issues a blow to Philips' profits

The problems Philips is having with its sleep apnea devices have taken a big bite out of the profits of the healthcare technology group. Philips closed the year with a profit of 612 million euros, compared to 999 million euros a year earlier. The problems with the sleep apnea devices saddled the company with a cost of 719 million euros, excluding legal fees. The company could not provide clarity about the latter.

The sleep apnea devices contain an insulating foam that has been found to crumble and that can be dangerous for users. Also, if the foam comes into contact with specific cleaning agents, it could lead to potentially harmful chemical reactions. In addition to the recall costs, Philips also expects damage claims from users. Lawsuits have already been filed, particularly in the United States.

Philips' turnover amounted to 17.2 billion euros. With that, comparable sales were 1 percent lower than a year earlier. In the closing quarter of 2021, turnover was 10 percent lower. Philips previously warned that it would suffer significantly from shortages of electronic components and freight capacity, which affected the turnover. Customers are also delaying equipment installation, and freight transport costs have risen sharply.

The drop in turnover last year was entirely attributable to Connected Care, a division that excelled in 2020 due to the high demand for respiration equipment, among other things. Last year, the demand was less. The problem with the sleep apnea devices also hindered good performance. In the closing quarter of 2021, the annualized unit alone had a third lower turnover than a year earlier. The other divisions, Diagnosis & Treatment and Personal Health, accounted for 8 and 9 percent more revenue, respectively.

Philips expects supply chain problems and component shortages to ease over the course of this year. In the short term, according to CEO Frans van Houten, there will be "significant volatility and headwinds," also due to the challenges surrounding the coronavirus. The recovery is expected in the second half of the year.