Chip shortages, recall hit Philips

Chip shortages, recall hit Philips

Business news |
By Nick Flaherty

The move from consumer products to healthcare has seen Eurpean electronics giant  Philips avoid the worst of the challenges of the chip shortage, although it has been hit in other ways with a turnover of €17.2bn in 2021, down ten percent from the €19.5bn turnover in both 2019 and 2020.

The last quarter saw a fall of 10 percent in sales, although orders were up 4 percent in the last quarter and across the year as a whole, with growth over 10 percent in the Diagnosis & Treatment businesses. The consumer business was divested in September last year, although Philips kept the personal health equipment business, which continued to grow. However the Connected Care businesses saw a 1 percent fall in sales

“In the fourth quarter, we recorded €4.9bn sales, reflecting a 10 percent comparable sales decline, with a margin of 13.1 percent,” said Frans van Houten, CEO of Royal Philips. “Sales were impacted by several headwinds, namely supply chain challenges, postponement of equipment installations in hospitals related to Covid-19, and the consequences of the Respironics field action.”

“Our strategy and portfolio continue to resonate very well with customers and consumers, generating good demand for our products and solutions. For the full year, I am pleased with the 8 percent comparable sales growth in the Diagnosis & Treatment businesses and 9 percent growth in the Personal Health businesses. Connected Care sales declined, resulting in a 1 percent comparable sales decrease for the Group. The headwinds had a combined impact of 5 percentage-points on the Group’s full year comparable sales.”

The shortage saw increased costs from higher component prices. The company took a hit of €120m from cost increases related to increases in supply costs, as cost savings of €398m were reduced to €279 million for the full year.

The company continues its acquisitions of medical companies, particularly with machine learning expertise. Building on the BioTelemetry acquisition, Philips acquired Cardiologs, adding a vendor-neutral heart disorder screener and ECG analysis applications based on machine learning algorithms. 

“During 2021, we signed 80 long-term strategic partnerships and launched innovations such as the Spectral CT 7500 to support a precision diagnosis, as well as expanding our Azurion image-guided therapy platform,” he said. Philips signed 35 new long-term strategic partnerships in North America, Europe and Asia, including a 10 year agreement with a large integrated healthcare system in the US for advanced patient monitoring and enterprise imaging solutions

However the company has been hit by a recall of a home respirator system called Respironics, with a class action law suit in the US. Philips Respironics has produced a total of approximately 1.5 million repair kits and replacement devices so far, with 750,000 reaching customers, and aims to complete the repair and replacement program in the fourth quarter of 2022. The company is increasing the provision for this by €220m, mainly from a higher number of repairs and increased supply costs.

Philips Respironics is also a defendant in several class-action lawsuits and individual personal injury claims. Given the uncertain nature and timing of the relevant events and potential associated obligations, if any, the company is unable to reliably estimate the financial effect of these matters, it said.

“Based on good customer demand and our growing order book, we expect to resume our growth and margin expansion trajectory in the course of 2022. In the short term, however, we continue to see significant volatility and headwinds related to Covid-19 and supply chain challenges, despite our ongoing mitigation efforts,” said van Houten. “Due to this, the Respironics field action and the 9 percent comparable sales growth in Q1 2021, we expect to start the year with a comparable sales decline, followed by a recovery and strong second half of the year.

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