More layoffs at Philips as R&D, procurement restructures

More layoffs at Philips as R&D, procurement restructures

Business news |
By Nick Flaherty

Royal Philips has announced 6000 more layoffs as it restructures research and supply chain activities under its new CEO, Roy Jakobs.

The company, a major European electronics firm, has had a central R&D unit that has been responsible for many consumer innovations over the years, from the first radio cassette recorders to CDs and DVDs and even the ill-fated laser disk.

With the strategic shift to healthcare over the last few years, that research function is being moved into the individual businesses and the central activity slimmed down by nearly 70% The businesses will also take more responsibility for procurement and sourcing components to give them more options in the continuing chip shortage.

“We will urgently enhance the supply chain reliability to improve performance and simplify our way of working to improve our agility and productivity. This includes the difficult, but necessary further reduction of our workforce by around 6,000 roles globally by 2025,” said Roy Jakobs, the new CEO who took over last October.

Philips is also changing its supply chain to a dedicated end-to-end set-up by business to better manage and improve supply chain reliability and agility. Furthermore, the company is pruning its portfolio, redesigning products and components, and stepping up its strategic supplier management to materially de-risk supplies and delivery.

The changes to R&D will see a budget of 9% of sales in 2023 at €1.7bn, down from 10.5% of sales in 2022.

This follows poor results that are blamed on the chip shortage and an expensive recall of its Respironics ventilators in the US.

The company saw sales of €17.8bn for 2022, down 3% on 2021 as a result of operational and supply challenges, lower sales in China, the consequences of the Respironics field action and the Russia-Ukraine war. This led to a loss of €1.59bn for the year mostly from 1.5bn writing off goodwill and R&D  charges as a result of the recall, but that still compared to profits of €553m in 2021

More worrying is a fall in orders of 3% for 2023, compared to 4% growth in 2021, hence the restructuring.

“2022 has been a very difficult year for Philips and our stakeholders, and we are taking firm actions to improve our execution and step up performance with urgency,” said Jakobs this morning.

“When I took over as CEO in October 2022, I said that our priorities are first to further strengthen our patient safety and quality management and address the Philips Respironics recall; second, to improve our supply chain reliability to convert our order book to sales and improve performance; and third, to simplify how we work to increase agility and productivity.”

Around 4000 layoffs are underway already, announced when Jakobs took over. Half the additional 6000 layoffs will happen in 2023, with the remainder by 2025. This marks an overall cut of 12% out of the total of around 80,000 employees worldwide since Jakobs took over.

This comes as US tech firms such as Intel are also laying off staff.

Philips will concentrate a higher proportion of its R&D resources in the businesses with 90% compared to 70% in 2022. As a result, part of Philips’ corporate innovation activities will move into the businesses. Additionally, the company will focus on fewer, better resourced, and more impactful projects.

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