Dutch giant Philips saw its shares fall by approximately 17% on Monday, marking the company’s worst daily performance in 26 years. The setback was driven by a cut in its revenue forecast following an unexpected drop in sales of health technology products in China, including electric toothbrushes and medical devices. The Chinese economy is currently experiencing a period of weakness, which has led to a significant decline in domestic consumption and hospital purchases.
In addition to the economic situation, strict anti-corruption measures implemented by the Chinese government have also hampered the country’s medical equipment market. According to Philips, these regulations require Chinese hospitals to follow strict procedures before purchasing new equipment, which has resulted in delayed orders and a drop in sales of medical devices. As a result, the company has lowered its annual growth forecast from 3-5% to just 0.5-1.5%, disappointing investors who were quick to react to the new projection.
Despite the challenges in China, Philips continues to grow in other regions. In North America, its largest market for medical systems, demand for healthcare equipment remains strong. In addition, CEO Roy Jakobs said the company is focused on expanding its operations in regions such as Latin America and Indonesia, where there is still a strong need for healthcare products. Jakobs also believes demand in China could recover in the future, but he did not give a specific timetable for when that will be.
Another factor contributing to the stability of Philips’ profit margins was the increase in efficiency, driven by artificial intelligence technologies. These advances helped the company to optimize its processes and maintain an EBITA margin of 11.5%, within the upper range of its expectation for the year. However, the context of uncertainty is intensified by the legal issue in the US involving Philips’ sleep apnea devices. After a lawsuit to resolve injury claims, the company still faces a federal investigation, which could result in significant additional fines.
With a challenging market in China, anti-corruption measures and a delicate situation in the US, Philips needs to focus on diversifying its revenue sources to stabilize its global growth. The company must seek opportunities in alternative markets and innovate in products that meet the demands of an increasingly competitive healthcare sector.
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