Royal Philips Electronics (NYSE:PHG) is planning to cut 4,500 jobs to boost profits after reporting its worst quarterly results in two years.
The Dutch conglomerate posted profits of $105.3 million (€76 million) on sales of $7.48 billion (€5.40 billion) for the third quarter, down 85.5 percent and 1.2 percent, respectively.
Philips’ healthcare division logged “solid” growth of 7 percent after taking account of exchange rates, according to a press release. Philips Healthcare reported sales of $2.85 billion (€2.08 billion) during the third quarter, compared with sales of $2.84 billion (€2.07 billion) during Q3 2010.
“Investments in R&D and selling expenses required for new product launches negatively affected margins in the quarter,” Philips said of its health care subsidiary.
Philips also said its restructuring effort “targets EUR 800 million in savings and aims to significantly decrease complexity and overhead costs, while at the same time reinvesting in innovation and customer-facing resources.”
“About 60 percent of the savings are people-related and will result in the loss of 4,500 positions, 1,400 of which will be in the Netherlands. The remaining 40 percent relate to other structural costs,” according to the release.
“We are still in the early stages of a multi-year overhaul to become a more entrepreneurial and lean company, but we are encouraged by the response of our employees,” CEO Frans van Houten said in prepared remarks. “Our cost reduction plan of EUR 800 million has now been detailed, and we are in the process of deploying it across the organization as we optimize all overhead and support costs not directly involved in the operational customer value chain. The cost savings program will lead to the loss of approximately 4,500 jobs, which is a regrettable but inevitable step to improve our operating model to become more agile, lean and competitive.
“Our Healthcare revenues are growing, led by a strong product portfolio. We are closely monitoring the overall economic environment and its potential impact on the Healthcare business in the medium term,” van Houten added.
Wall Street seemed to like the cost-cutting measures; PHG shares were up nearly 3 percent to $20.48 as of about 3:30 today.