Philips works to keep tariff impact in check

AMSTERDAM – Philips expects a net tariff impact of EUR 250 million to EUR 300 million, even as it accelerates substantial mitigation actions, company officials said during a recent conference call to discuss first quarter financial results. 

President and CEO Roy Jakobs explained that Philips has taken proactive steps for the past several years to build a more resilient supply chain, including diversifying and regionalizing key operations, especially in China, well ahead of the tariffs recently implemented by U.S. President Donald Trump. 

“We are further accelerating those efforts, especially toward the U.S.,” he said. “Also, we are going beyond shifting geographies. Our mitigation actions include supply network and manufacturing optimization, holding the right levels of inventory, pursuing exemptions, selective pricing and building greater operational agility and resilience. We view these as necessary to maintain our competitiveness, protect margins and secure long-term growth.” 

The bi-lateral impact of U.S.-China tariffs is an estimated EUR 145 million and EUR 125 million, respectively. 

Leaning into localization 

Philips’ mitigation plans include expanding footprints in “Asia for Asia; China for China, where we are 90% now localized; Europe for Europe; and Americas for Americas,” Jakobs said. In the U.S., the company has announced a multi-million-dollar investment in a manufacturing and training facility in Plymouth, Minn., focused on its cardiac device offerings.  

“(What) the current situation asks for is that we accelerate, in particular, the localization into the U.S., which builds on an already strong footprint that we have,” he said. “We have 46 locations in the U.S. We have billions of spend into the U.S. every year and we produce part of our ultrasound and monitoring and also our imaging equipment in the U.S., but we plan to bring more of that.” 

Pursuing exemptions & cost discipline 

Philips is also pursuing “duty drawbacks and things like the Nairobi Protocol,” said Charlotte Hanneman, CFO, which is especially relevant to the company’s Sleep & Respiratory Care business. Resmed recently received confirmation that its devices would continue to be exempted from tariffs. 

Additionally, Philips is “applying strong cost discipline” as it manages discretionary and overhead spending, while remaining committed to its long-term innovation priorities, Jakobs said. 

Keeping an eye on disruption 

The macro environment in the U.S. is not insulated to tariffs. An analyst asked Philips if the recent disruptions at the U.S. Food and Drug Administration and other government agencies would impact the company’s progress on a consent decree that determines when and how it re-enters the CPAP market in the country. 

“Actually, we don't see that yet impacting our engagement on the consent decree,” Jakobs said. “What we are more concerned about would be longer-term approval cycles that could prolong new innovations. So, that's also what we stay tight on with them – to keep them abreast of what we're developing. But on the consent decree mitigation, we (have) very active dialogue.”