Philips CEO Starts Tenure By Cutting 4,000 Jobs Amid Recall Woes

Royal Philips NV will cut 4,000 jobs just days after a new chief executive officer took over, as the Dutch company seeks to reduce expenses while it wrestles with a costly recall of a consumer medical device.

The cuts amount to about 5% of Philips’s workforce, and the company will book severance and termination-related costs of about €300 million ($295 million) in the coming quarters, Philips said Monday. The company announced the steps a good week after Roy Jakobs took over from Frans van Houten, who had held the CEO position for 12 years.

Philips’s priority is “to improve execution so that we can start rebuilding the trust of patients, consumers and customers,” Jakobs said in a statement. These steps include strengthening patient safety and quality management as well as “urgently improving our supply chain operations.”

The restructuring also seeks to combat inflation, Jakobs said in a phone interview after the earnings report. The CEO vowed to continue tackling product quality and supply chain issues as well as simplifying the organization.

Jakobs was put in charge of turning around the company’s Connected Care businesses in early 2020, managing the response to the Covid-19 crisis and the growing issues around the recall of medical devices to treat sleep apnea. The healthcare giant’s shares have dropped 60% this year.

Philips rose as much as 20 cents, or 1.6%, to 13.47 euros in Amsterdam, after falling as much as 1.8% in early trading.

The company continues to face court cases over noise-dampening foam prone to disintegrating inside the ventilators that allegedly pose a cancer risk when inhaled. Philips started its first recall of the devices in June of last year and has made financial provisions of about €885 million.

Philips has also taken a €1.3 billion impairment charge for its sleep and respiratory care business. The writedown reflects factors including changing estimates of a proposed settlement with US authorities over the sleep-apnea devices.

The company reported a net loss of €1.33 billion in the third quarter, compared with a profit of €2.97 billion in the same period a year earlier. Earlier this month, the maker of medical devices cut its outlook on the back of worse-than-expected supply-chain issues that are affecting deliveries and customer installations.