Philips fails to solve quality-contol problems

Failure to solve quality-control problems has cost Dutch healthcare and lighting firm Philips dearly. Its manufacturing plant for medical equipment in Cleveland, Ohio, USA, had been plagued by complaints and came under close scrutiny by the U.S. Food & Drug Administration (FDA). An FDA report concluded that Philips had failed to adequately address tens of thousands of complaints, defects and system faults, and had insufficiently controlled the quality of products received from suppliers.

It now appears that Philips grossly underestimated the scale of the matter. According to reports in January 2015, the group suffered a big drop in fourth-quarter profits (net profit fell to EUR 134 million from EUR 412 million), which is much more than analysts had anticipated, mostly due to costs at the Cleveland plant. CEO Frans van Houten has said Philips is unlikely to hit its financial targets for the next two years.

The company is preparing to split off its lighting business to expand its higher-margin healthcare and consumer arms and expects this shake-up to contribute to up to EUR 400 million in costs this year. Van Houten described the 2014 performance as a setback but said that Philips would overcome the problems in Cleveland, price erosion in lighting and slower-than-expected global growth.