On May 6, 2025, Dutch healthcare technology company Philips announced a significant cut to its profit margin forecast for the year 2025, citing a net impact from tariffs that could range between 250 and 300 million euros (approximately $283 million to $340 million). This announcement caused Philips' shares, listed in Amsterdam, to drop as much as 4% during early trading on the same day.
Philips has identified the United States as its largest market, accounting for about 40% of its projected sales for 2024 and contributing one-third of its tax obligations. The company imports a variety of products from China, including Respironics breathing masks, electrical shavers, and toothbrushes, while sourcing its medical equipment primarily from European manufacturers.
In response to the potential financial fallout from ongoing trade tensions, Philips is implementing several strategic measures. CEO Roy Jakobs indicated during a post-earnings call that the company is focused on reducing the impact of tariffs through pricing and supply chain adjustments. Specifically, Philips plans to accelerate production at some of its 46 U.S. locations and further localize its operations in China, which currently supply around 90% of its market there.
"We are in contact with governments in China, in the EU, in the Netherlands, and also in the U.S.," Jakobs stated, emphasizing the company's proactive approach to mitigating the effects of tariffs. He noted that discussions are ongoing regarding the exclusion of medical technology from current tariff regimes.
The uncertainty surrounding U.S. tariffs on the healthcare sector remains a crucial concern. Analysts have suggested that companies may have to absorb near-term costs if these tariffs are enacted. Washington has also initiated an investigation into the pharmaceutical industry, which could lead to further levies.
Philips is looking to leverage relief measures, such as the Nairobi Protocol, which exempts certain medical devices used to treat chronic conditions from tariffs. However, Jakobs acknowledged that other cost-reduction measures might include job cuts, stating, "but it's far beyond people alone." In the previous year, Philips paid 38 million euros in U.S. customs duties, according to a report released in February.
As a result of these developments, Philips has adjusted its expectations for adjusted earnings before interest, taxes, and amortization (EBITA) margin. The new forecast is set between 10.8% and 11.3%, a decrease from the earlier prediction of 11.8% to 12.3%. J.P. Morgan analysts noted that this adjustment appears to factor in the resumption of tariffs at the currently announced rates, although they also mentioned that there is potential for upside if rates are lowered.
Despite these challenges, Philips has reaffirmed its forecast for comparable sales growth of between 1% and 3% for the year. The company reported sales of 4.10 billion euros for the quarter ending March 31, which represented a 2% decline year-on-year in comparable terms. Nevertheless, this figure exceeded analysts' average forecast of 4.02 billion euros, indicating a stronger-than-expected performance, particularly in North America, which helped offset declines in the Chinese market.
Philips is not the only company feeling the pinch from tariffs. GE HealthCare has also warned that tariffs could significantly impact its full-year profits, estimating losses of around $500 million. Meanwhile, Siemens Healthineers is set to report its first-quarter results on May 7, 2025, adding to the growing concerns within the healthcare technology sector.
The implications of these tariff-related challenges extend beyond mere financial metrics. They reflect a broader trend of increasing trade tensions and the complexities of operating in a global market. As companies like Philips navigate these turbulent waters, the strategies they employ to mitigate risks will be closely scrutinized by investors and industry analysts alike.
In conclusion, the healthcare technology sector is facing unprecedented challenges due to tariff-related issues, with Philips at the forefront of this struggle. As the company adapts to a changing economic landscape, its actions will likely serve as a bellwether for the industry as a whole, illustrating the delicate balance between global trade dynamics and corporate profitability.
