Philips After Respironics: How a Sleep-Apnoea Recall Shook a 130-Year-Old Dutch Icon

Philips is a case study in how a single product-quality failure can consume a company’s balance sheet, its share price and its management bandwidth for half a decade, even when the underlying business is sound. Founded in Eindhoven in 1891 to make incandescent lamps, Royal Philips spent the 2010s shedding lighting, televisions, audio and domestic appliances to become a health-technology group. Just as that transformation was completing, a foam problem in a US subsidiary it had bought in 2008 for about US$5.1 billion set off the biggest crisis in its modern history. This article explains how the recall unfolded, what it has cost, how Roy Jakobs has steered the turnaround and what the 2025 and first-half 2026 numbers say about where Philips stands now. It is part of the Netherlands Company Stories hub.

How did a lamp maker from Eindhoven become a health-technology company?

Philips became a health-technology company by selling almost everything else. Between 2011 and 2023 it exited televisions, audio, lighting and domestic appliances, keeping medical imaging, patient monitoring, sleep and respiratory care and personal-care products such as electric shavers and toothbrushes.

The company was founded on 15 May 1891 by Gerard Philips and his father Frederik, with Anton Philips joining in 1895 to run sales. For most of the twentieth century it was one of Europe’s archetypal conglomerates, with activities spanning light bulbs, radios, television sets, semiconductors, medical X-ray equipment, music (PolyGram) and domestic appliances. The unwinding began in earnest in the 2000s: PolyGram had already gone to Seagram in 1998, and in 2006 an 80.1% stake in the semiconductor division was sold to a private-equity consortium, creating NXP, a story told in the Dutch chip cluster article.

Frans van Houten, CEO from 2011 to 2022, took the process to its conclusion. Most of the television business went into the TP Vision joint venture in 2012, the lighting division was separated in 2016 and renamed Signify in 2018, and the domestic-appliances unit was sold to Hillhouse Investment in September 2021 and later renamed Versuni. What remained was a company with three reporting segments, Diagnosis & Treatment, Connected Care and Personal Health, and a strategy of selling health systems “solutions” rather than boxes of equipment.

The timing of the Respironics crisis was therefore brutal. Philips had just finished explaining to investors that it was no longer a conglomerate with a mixed bag of margins, but a focused medical-technology company deserving a medical-technology valuation. The recall arrived within months of the Domestic Appliances sale, and it arrived inside the very segment, Connected Care, that was supposed to show the strategy working.

What exactly did Philips Respironics recall in 2021?

On 14 June 2021 Philips announced a voluntary recall of certain CPAP and BiPAP sleep-therapy devices and mechanical ventilators because the polyester-based polyurethane (PE-PUR) foam used to reduce noise and vibration could degrade. Degraded foam could release particles that users might inhale or swallow, and could emit volatile organic compounds.

Respironics was founded in 1976 near Pittsburgh by Gerald McGinnis and had become a leading maker of sleep-apnoea devices by the time Philips agreed to buy it in December 2007 for US$66 per share, roughly US$5.1 billion. Around 2010, according to later reporting, the business began adding PE-PUR foam to its machines to reduce rattling. The foam problem was identified internally well before the public recall; Philips has acknowledged that it began investigating in 2019, and US regulators later said thousands of complaints spanning more than a decade had not been reported to the FDA within the required timeframes.

The scale was enormous. Philips initially spoke of 3 to 4 million devices worldwide; later analyses put the number of affected units as high as 15 million once replacement and remediation programmes were taken into account, with more than 700,000 US veterans among the users. The FDA classified the recall as Class I, its most serious category, and by 2024 had received more than 100,000 medical-device reports, including several hundred reports of deaths that were alleged, though not proven, to be linked to the foam.

What turned a product recall into a corporate crisis was the remediation. Philips had to manufacture and ship millions of replacement or repaired devices while under intense regulatory scrutiny, and in 2023 tests found that some replacement units also emitted detectable levels of formaldehyde. Each new disclosure pushed the share price down and extended the timeline for resolving the problem.

Why did the crisis end up in a US consent decree?

The consent decree followed an FDA inspection of the Respironics plants that found persistent quality-system failures. Rather than fight, Philips agreed in January 2024 to stop selling new sleep and respiratory devices in the United States until it could meet a multi-year roadmap of compliance milestones, and the decree was formalised with the US Department of Justice in April 2024.

The decree is the most consequential single document in this story. It bars Philips Respironics from selling new CPAP, BiPAP and certain ventilator products in the US, which had been its largest market, while allowing it to continue servicing existing patients and to sell consumables and accessories. Roy Jakobs told investors that fully complying with the decree’s requirements could take five to seven years. Philips continues to sell sleep and respiratory devices outside the United States.

The cost of living under the decree is visible in Philips’ quarterly reports. In 2025 the company booked €97 million of consent-decree charges and €112 million of field-action running costs, a combined €209 million. The first half of 2026 added another €84 million (€49 million of decree charges and €36 million of field-action costs). These sums are small relative to group revenue, but they are permanent line items that the company cannot reclassify as one-offs.

The decree also did not end the investigations. Philips’ second-quarter 2026 report lists continuing engagement with the US Securities and Exchange Commission, the Department of Justice, 41 US state attorneys general and Australia’s Therapeutic Goods Administration. In the Netherlands, shareholders asked the Enterprise Chamber of the Amsterdam Court of Appeal to order an inquiry into the company’s conduct, with a decision expected around the end of the third quarter of 2026. A US securities class action, in its third amended version, awaits a ruling on Philips’ motion to dismiss. The company explicitly excludes all of these proceedings from its financial outlook.

What did the settlements actually cost Philips?

Philips has settled the two largest categories of US claims for a combined figure of roughly US$1.6 billion, and the cash left the company mainly in 2024 and 2025. The economic-loss class action, covering users who wanted refunds or replacement costs, was settled in September 2023 for at least US$479 million. The personal-injury and medical-monitoring claims were settled in April 2024 for about US$1.1 billion, without any admission of liability.

The company’s cash-flow statement shows the effect. Free cash flow for 2025 was €512 million, a figure that includes a €1,025 million payment for the recall-related medical-monitoring and US personal-injury settlements. Strip that out and underlying free cash flow was above €1.5 billion, which is why management could describe 2025 as a strong cash year even as reported cash flow fell.

The indirect costs are harder to quantify but probably larger. Philips Respironics was, before 2021, one of two global leaders in sleep therapy alongside ResMed. Four years without new US device sales handed that market to its competitor. Analysts have estimated the forgone revenue in the billions of euros, though Philips does not disclose a figure. The company also wrote down goodwill and inventory and spent heavily on the remediation programme itself, which involved repairing or replacing millions of devices.

Then there is the share price. Philips stock lost roughly two-thirds of its value between its 2021 peak and its 2022 trough, wiping tens of billions of euros from its market capitalisation. The recovery since has been real but partial; the company is still valued well below its pre-recall level despite healthier margins, which tells investors something about the discount the market applies to unresolved legal risk.

How has Roy Jakobs run the turnaround?

Roy Jakobs became president and CEO on 15 October 2022, inheriting a company with a collapsed share price, an open-ended recall and a cost base built for faster growth. His first move was a restructuring that cut thousands of jobs; his second was a €2.5 billion three-year productivity programme for 2023 to 2025, which Philips says it delivered in full, including €0.8 billion of savings in 2025.

Jakobs, who had run the Personal Health segment and before that the Connected Care business, framed the plan around three priorities: patient safety and quality, supply-chain reliability and a simpler operating model. In practice that meant fewer management layers, a single quality-management system across the company and a willingness to concede the US sleep market rather than contest the FDA’s findings. The decision to accept the consent decree rather than litigate it was arguably the most important call of his tenure, because it capped the regulatory uncertainty even as it locked in the commercial loss.

The results show up most clearly in margins. Adjusted EBITA margin rose from 10.2% in 2023 to 11.5% in 2024 and 12.3% in 2025, an 80 basis point improvement in the latest year. Within that, Personal Health reached an 18.0% margin on 8% comparable growth in 2025, Connected Care recovered to 10.7% as the Respironics drag faded, and Diagnosis & Treatment, the imaging and image-guided therapy business, posted 11.7% on flat comparable sales. Order intake grew 6% in 2025 and 7% in the fourth quarter, which matters because imaging equipment is sold on long lead times.

Philips also simplified the shareholder register. Exor, the Agnelli family holding company, built a stake of about 15% in 2023 and took a board seat, giving Jakobs a long-term anchor investor at a moment when activist pressure might otherwise have forced a break-up. The company’s 2025 dividend of €0.85 per share, payable in cash or shares, was approved at the May 2026 annual meeting.

What do the 2025 and first-half 2026 results show?

The 2025 and first-half 2026 numbers show a company that has stabilised its profitability but not yet rediscovered growth. Group sales in 2025 were €17,834 million, down 1% nominally because of currency effects and consolidation changes but up 2% on a comparable basis. Net income was €897 million, diluted earnings per share €0.93, and the year-end headcount 64,817 full-time equivalents.

The first half of 2026 brought comparable growth of 4%, with second-quarter sales of €4,360 million and net income of €386 million. The headline was the margin: Adjusted EBITA margin in the second quarter reached 16.4%, but €186 million of that came from a one-off refund of US import tariffs that Philips had paid and then successfully reclaimed. Excluding the refund, the margin was about 12.2%, slightly below a year earlier, as cost inflation and tariffs ate into gains from the productivity programme. CFO Charlotte Hanneman told analysts that leverage had fallen to 1.8 times net debt to EBITDA from 2.2 times a year earlier, with net debt of €5.7 billion.

Guidance for 2026 was raised in July: comparable sales growth of 3% to 4.5% (unchanged), Adjusted EBITA margin of 13.5% to 14.0% (up from 12.5% to 13.0%, with about one percentage point from the refund) and free cash flow of €1.5 billion to €1.7 billion. Management also set a new €1.5 billion productivity target for 2026 to 2028 and reiterated the medium-term ambition of mid-single-digit growth and mid-teens margins by 2028.

Where is Philips still exposed?

Philips remains exposed on three fronts: the unresolved Respironics investigations, China and tariffs. The company’s own outlook excludes “ongoing Respironics-related proceedings”, which is a polite way of saying that a Department of Justice criminal resolution or a state attorneys-general settlement could still produce a material charge.

China is the second concern. Philips’ Diagnosis & Treatment segment, which sells CT and MRI scanners and image-guided therapy systems, has seen sales in China fall as hospitals delayed purchases amid an anti-corruption campaign and the expansion of centralised volume-based procurement, which pushes prices down. Jakobs told analysts in July 2026 that the full-year outlook for China was “broadly stable”, with Personal Health growth offsetting weaker health-systems demand, but the second-quarter Diagnosis & Treatment margin excluding the refund was only 9.3%, down more than 400 basis points year on year.

Tariffs are the third. Philips manufactures across Europe, the US and Asia and ships finished systems across borders, so it is exposed to US import duties on medical equipment. The 2026 tariff refund was welcome but one-off; the underlying guidance assumes “currently known tariffs” and higher cost inflation in the second half. Order intake fell 1% in the second quarter after six consecutive quarters of growth, which management attributed to timing of large North American monitoring orders rather than lost demand.

How does the Philips story fit into the wider Dutch corporate landscape?

Philips is one of several Dutch icons that have narrowed their focus under pressure, and its evolution mirrors the country’s broader shift from manufacturing conglomerates to specialised technology and health businesses. The chipmaking spin-outs it created, NXP and ASML (which began as a Philips joint venture in 1984), are now worth many times their parent, a reversal explored in the ASML article.

Within the health sector, Philips anchors the Brainport region around Eindhoven and the imaging-equipment cluster in Best, a few kilometres away, where it builds CT and MRI systems. Its Diagnosis & Treatment segment had sales of €8.5 billion in 2025, making it by far the largest Dutch medical-equipment business and a major exporter, a theme picked up in the article on Dutch diagnostics businesses. The Dutch health-insurance system that buys much of this equipment, and the price pressure it exerts on hospitals, is explained in the piece on how Dutch healthcare works.

The recall also left a mark on Dutch corporate governance. The request for an Enterprise Chamber inquiry, a procedure unique to the Netherlands that allows shareholders to seek a court-ordered investigation into mismanagement, is being watched by other listed companies. If the court orders an inquiry, it would be one of the highest-profile uses of the mechanism since the Fortis and Ahold cases, and could set a precedent for how Dutch boards are held to account for product-safety disclosure.

What can founders and investors learn from Philips after Respironics?

The Philips story offers four durable lessons for founders, CFOs and investors, and none of them is about sleep apnoea.

First, acquisitions carry latent liabilities that due diligence rarely prices. Philips bought Respironics in 2008 as a growth engine; the foam decision made around 2010 and the complaint data accumulated afterwards became Philips’ problem, not the sellers’. Any acquirer in a regulated industry should assume that quality-system weaknesses will surface at the worst possible moment and should model the cost of a Class I recall as a real scenario, not a tail risk.

Second, regulators reward candour and punish delay. The consent decree and the volume of state attorneys-general interest reflect not just the defect but the perception that reporting was late. Companies that disclose early typically pay for the defect; companies that disclose late pay for the defect and the delay.

Third, a focused portfolio magnifies both upside and downside. Van Houten’s divestments made Philips easier to understand and value, but they also removed the diversification that might have cushioned a crisis in one segment. The same logic applies to startups that bet everything on one product line; concentration is a strategy, not a safeguard.

Fourth, operational turnarounds can run in parallel with legal ones. Jakobs did not wait for the litigation to resolve before cutting costs, fixing supply chains and raising margins. The 12.3% Adjusted EBITA margin and the lower leverage in 2026 give Philips room to absorb whatever the remaining proceedings cost. Investors who want to study a Dutch company that chose a different path, moving its headquarters rather than restructuring at home, can compare the Shell relocation story.

Frequently Asked Questions