Recently, foreign media reported that Philips Wellcome has notified its suppliers that it plans to outsource the manufacturing operations of its factories in Murrysville and New Kensington, Pennsylvania to Thailand.

It is reported that this is based on a letter sent by Philips subsidiary to suppliers in June, stating that contractor manufacturer Kimball Electronics will take over this work at its Thailand factory in the next two years. The Pittsburgh Post reported that this move will result in the reduction of hundreds of job positions.

It is understood that the two manufacturing plants in Pennsylvania are part of Philips Wellcome's operations and are subject to a consent order from the FDA and the US Department of Justice, which involves the company's large-scale recall of continuous positive airway pressure (CPAP) and bi level positive airway pressure (BiPAP) ventilators in Class I.

Philips stated in a statement to the Pittsburgh Post that "these changes will not affect Philips Wellcome's commitment to comply with the consent order and will ensure that it can provide the highest quality products to patients most effectively and competitively." Philips also stated that it will retain a respiratory device development center in the Pittsburgh area.

In addition, Tripak Industries, a supplier of Philips, claimed that over $300000 worth of packaging materials had not been paid for, and Philips stated that it is working to resolve the issue.

01. Philips Wellcome relocates manufacturing operations to Thailand
Kimball Electronics' factory in Laem Chabang, Chumphon Province, Thailand covers an area of 220000 square feet and specializes in PCBA manufacturing, sub assembly, system construction, and complete medical system assembly.
Kimball Electronics reported that its net sales for the most recent year were $1.7 billion (as of June 30, 2024), down from $1.8 billion in 2023. The company stated in its annual report that its annual revenue for the past two years is the highest in the company's history. Among them, the medical industry accounts for 25% of the net sales in 2024. The statement states that in recent years, Philips alone has accounted for a "significant portion" of the company's total sales, with 15% in 2022, 14% in 2023, but "less than 10%" in 2024.

The company did not mention Philips by name, but stated that the total sales in the medical market in 2024 decreased due to a decrease in business with a large medical customer that is recalling products. It lost $100 million in business due to the FDA recall, but the company stated that the reason for the recall was unrelated to the products it provided.

It is understood that in addition to sleep therapy and respiratory care equipment, Kimball Electronics also provides services to medical customers developing image-guided therapy, in vitro diagnostics, drug delivery devices, automatic external defibrillators (AEDs), and patient monitoring technologies.

Previously, Philips stated in its annual letter to shareholders, "In our vertical business, the correction is greater than we initially expected, making fiscal year 2025 another year of 'controlling what we can control'. In the short term, this means we will continue to focus on cost structure, margin levels, working capital management, and capital expenditure investments. However, in the longer term, 'controlling what we can control' will go beyond these measures and focus on increasing revenue.

Philips said, "Our largest medical customer recently announced that Kimball will become the sole supplier for respiratory care final assembly and advanced assembly businesses, which is a great example of the growth potential we see.

02. The third quarter performance of 2024 is released, and the stock price has fallen
It is worth noting that on October 28, 2024, Philips announced its third quarter results with sales of 4.377 billion euros (contract 33.702 billion yuan), and at the same time lowered its annual sales guidance. In early trading on the 28th, PHG's stock price fell nearly 17% to $26.47 per share.
As of October 29th Eastern Time, Philips closed at $26.84, with a highest stock price of $27.16, and the company's market value fell to $25.07 billion.

The report shows that Philips' sales in the third quarter were 4.377 billion euros, a year-on-year decrease of 10.05%, lower than analysts' expectations of 4.538 billion euros; The adjusted EBITA was 516 million euros, a year-on-year increase of 13%, which is in line with expectations; Cost reduction has pushed the profit margin up to 11.8%; Earnings per share were 0.32 euros, lower than analysts' expectations of 0.35 euros. The order volume during the period decreased by 2% year-on-year.

Due to the decline in demand in the Chinese market, the company has lowered its annual sales guidance and currently expects comparable sales to increase by 0.5 to 1.5%, lower than the previously expected 3% to 5%.

According to the financial report, Philips' decline in the Chinese market began in the first quarter of 2024, during which the number of orders from China decreased by 3.8%. The reasons for the decrease in orders are multifaceted. Firstly, hospitals are more cautious in equipment procurement, resulting in delays in customer orders. Secondly, customers are waiting for clearer information on large-scale equipment updates policies, resulting in delayed orders.

In addition, the rise of domestic equipment and policy encouragement for domestic equipment have also affected Philips Medical's order volume in the Chinese market. In the "trade in" policy, domestic equipment is more favored, which has led some customers who may have originally chosen Philips medical equipment to turn to domestic equipment.

03. Philips Wellcome announced the closure of its Pittsburgh headquarters
In June 2024, Philips announced that it would close its Wellcome business headquarters in Pittsburgh and cut hundreds of manufacturing jobs in the region.

In a statement shared with local media, Philips stated that starting from the end of 2024, it will withdraw from its headquarters building in Pittsburgh and transfer 500 jobs to nearby production sites. At the same time, the company will terminate production at its Murrysville and new Kensington factories and hand over work to an undisclosed contract manufacturer.

It is reported that these measures will result in the loss of 300 jobs, leaving approximately 900 Weikang jobs in western Pennsylvania.

According to reports, the layoffs in Pittsburgh come at a time when Philips is seeking to resolve a three-year recall issue involving 5.5 million recalled CPAPs and other devices.In response to the layoffs in Pittsburgh, Philips stated in a statement, "Western Pennsylvania will continue to be a strong center for the development of sleep and respiratory care businesses. These changes will not affect Philips Wellcome's commitment to comply with FDA consent orders and will ensure that it can provide patients with the highest quality products in the most efficient and competitive manner possible

Data shows that Weikang Company was the first to invent CPAP machines for treating sleep apnea and sold the first batch of devices in the 1980s. In December 2007, Weikang Company was acquired by Philips and established the Philips Home Healthcare Solution, renamed as "Philips Weikang". Its products include sleep ventilators, non-invasive home ventilators, etc.

It is worth mentioning that in January of this year, Philips announced its withdrawal from the US ventilator market. Philips Respironics will focus on the sales of consumables and accessories, including face masks, and will no longer sell hospital ventilators, certain home ventilators, portable and fixed oxygen concentrators, and sleep diagnostic products.

In an interview with the Pittsburgh Post in 2023, Gerald McGinnis, founder of Wellcome, expressed disappointment and embarrassment regarding the recall incidents that have occurred since Philips took over the brand.

04. Focus on "patient safety and product quality" and improve the quality management system
According to the latest performance, Philips achieved a revenue of 4.377 billion euros in the third quarter of 2024. Among them, the revenue of diagnosis and treatment business was 2.15 billion euros, a year-on-year decrease of 1%; The revenue of the Internet security business was 1.21 billion euros, unchanged year-on-year; Personal health business revenue was 835 million euros, a year-on-year decrease of 5%. And Internet Care is the department where Weikang ventilators are located.

It should be pointed out that while continuously deepening product technology research and development, Philips also focuses on patient safety and product quality, placing them at the core of all business activities.

To this end, Philips has established a clear responsibility mechanism, elevating "patient safety and product quality" to the management scope of the company's top leadership, the Global Executive Committee, establishing a new organizational structure, strengthening business management processes, and enhancing the effectiveness of early warning systems.

At the same time, Philips is also focusing on increasing investment in systems, capabilities, and professional training, strengthening efficient identification of potential patient safety or product quality issues, further enhancing patient safety assessment capabilities, and striving to provide high-quality products and services for patients, customers, and consumers, safeguarding patient health.

Source: http://qixieke.com/Font/index/detailPage.html?id=3238-19