Reuters: Shares in Philips plunged 15% on Wednesday, their worst intra-day drop in over 20 years, after the Dutch health technology group warned supply chain woes would hit profits and a ventilator recall needed to be expanded.
Philips recalled up to 4 million of its breathing-aid machines last year amid concerns that a type of foam used in the devices could degrade and become toxic. It has now raised that estimate by 1 million and hiked its provision for the recall by 45% to 725 million euros.
“The extended recall is a major negative as this also extends the litigation risk”, ING analyst Marc Hesselink said.
The current provision does not cover the possible costs of litigation, with Philips facing more than a hundred class action suits. Fears of a large claims bill had already lopped around 15 billion euros off Philips’ market value in the past nine months.
Now specializing in medical equipment and other health products, Philips initially benefited from a jump in demand during the COVID-19 pandemic but a global shortage of semiconductors and other electronic components has left it exposed.
Chief Executive Frans van Houten said those shortages had put a serious brake on sales in recent months.
“We had shortages of several components and saw port congestion, sometimes up to 2 or 3 weeks. All of this meant our manufactured goods couldn’t reach customers in time”, he said.