Philips tackles China tariffs hit with 800m cuts

Philips is anticipating a flat business in 2025 as it navigates through the aftermath of a damaging recall and the looming impact of tariffs in China. To counter these challenges, the company has announced plans to implement €800 million in cuts as part of a three-year restructuring initiative. This strategic move is aimed at enhancing cost efficiencies and streamlining the operating model, with a heightened focus on productivity savings.

As part of its restructuring efforts, Philips has decided to divest its MEMS foundry business in Eindhoven, a significant step in reshaping its portfolio. The company is now targeting a productivity savings goal of €2.5 billion for the period spanning 2023 to 2025, up from the initial target of €2 billion. This shift underscores Philips' commitment to driving operational excellence and adapting to the evolving market dynamics.

Looking ahead to 2025, Philips is projecting a modest growth of 1%-3%, albeit with a projected decline of up to 9% in China. The company foresees a back-end-loaded sales growth trajectory for the year, with an expected mid-single-digit decline in Q1 primarily attributed to lower demand in China and royalties phasing. This projection also considers the potential impact of the recently announced US-China tariffs.

Despite the challenges posed by the recall and market uncertainties, Philips remains focused on delivering better care and driving improvements in profitability and cash flow. Roy Jakobs, the CEO of Royal Philips, emphasized the company's commitment to enhancing execution and strengthening its fundamentals. Notably, Philips has successfully resolved significant US litigation related to the Respironics recall, marking a pivotal milestone in its journey towards sustainable growth.

Philips' strategic shift towards medical equipment and services, coupled with a strong emphasis on leveraging AI technology, has positioned the company for future success. The recruitment of executives with a health technology background underscores Philips' commitment to driving innovation in the healthcare sector. With substantial savings already realized and a robust pipeline of productivity initiatives, Philips is poised to navigate the evolving market landscape with resilience and agility.