Millions of devices recalled because of health problems: it will cost Philips dearly!

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The devices contain an insulating foam which appears to be able to crumble, which can be dangerous for users. In addition, if the foam comes in contact with certain cleaning products, it can cause chemical reactions which can be dangerous. The action was heavily penalized on the Amsterdam Stock Exchange.

Philips previously recalled 3-4 million devices from the factory. In a commercial update, Philips says around 5.2 million devices are affected by the issue. It also costs Philips more to return the devices to the factory.

The company had already reserved 500 million euros for the recall. It is possible that users’ claims for damages are added to this. Lawsuits have already been brought on this subject, notably in the United States.

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Philips also expects much lower revenue for the last quarter of 2021 than previously expected. Besides the increase in transport costs, the company is also facing problems in the supply chain. These include shortages of electronic components and a tightening of freight capacities. In addition, customers are also postponing the installation of equipment.

Philips now expects a turnover of 4.9 billion euros, or 350 million euros less than what it previously expected. Philips is trying to alleviate the chip shortage by installing different types of chips in devices. In this way, the company wants to become less dependent on the vagaries of the market.

For the year as a whole, Philips forecasts sales of 17.2 billion euros. This would mean that the revenue would be slightly lower than in the previous year. According to the company, supply chain issues and the recall impacted the bottom line by 5 percentage points. Adjusted operating profit will be € 2.1 billion.

Senior executive Frans van Houten said the supply chain issues concern the entire company. “We are working closely with suppliers and governments to address shortages in the healthcare supply chain and ensure they understand the importance of prioritizing life-saving medical devices. “

The news left investors extremely pessimistic. The company lost 15.4% of its market value in one trading day after the announcement. ING analysts point out in a report that the widening of the recall also means that the chances that injured parties will succeed in claiming damages increase. Citi colleagues lowered their rating on the title. Dutch investor club European Investors-VEB is particularly concerned about the difference in tone between the US regulator FDA and Philips itself regarding the recall.

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