Philips ups financial projections for the year despite double-digit drop in demand for connected care products

Philips building
Philips’ nearly 30% drop in orders for its connected care business in the first quarter was to be expected after the surge it saw in early 2020 due to the COVID-19 pandemic. (Philips)

After the coronavirus pandemic sent connected medical device sales skyrocketing at the beginning of 2020, there was nowhere to go but down. Fortunately for Philips, its diagnostics and treatment technologies provided enough of a parachute to slow that freefall and produce higher-than-expected overall growth.

In the first quarter of 2021, the Dutch multinational reported a 27% decrease in orders for its connected care business. That steep drop-off was only to be expected, CEO Frans van Houten said in a statement, after the segment saw orders for patient monitors and hospital ventilators jump 80% during the same three months last year.

Even without the onset of a global pandemic, however, the connected care business still saw a modest 7% increase in sales, led by double-digit growth in clinical patient monitoring devices and software. Those sales totaled about $1.4 billion, up from about $1.34 billion in the first quarter of 2020.

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Despite the slowdown, Philips posted a 9% year-over-year increase in overall sales growth to start 2021, thanks in large part to an 11% jump in orders for its diagnosis and treatment products, which include ultrasound and image-guided therapy technologies. Those technologies raked in more than $2.24 billion in sales for the period, a 9% increase from the previous year’s intake.

The company’s personal health business, meanwhile, registered 17% year-over-year sales growth. That segment, which encompasses razors, skincare items and oral healthcare electronics, brought in about $886 million in sales for the quarter.

However, Philips also made a €250 million provision ($301 million U.S.) to address potential risks that it identified in some of its respiratory care devices, including older models of its CPAP machines.

The company said that the sound-dampening foam used in its first-generation DreamStation product line could degrade under particular circumstances, such as under high heat or humidity or with the use of certain cleaning products. Philips said that while the newer DreamStation 2 is unaffected by the issue, the provision would help cover the costs of planned repairs for devices currently in use.

Still, as a result of that first-quarter growth and Philips’ expectation that demand for its diagnosis and treatment and personal health products will expand as the year goes on, van Houten said that the company has ratcheted up its annual projections.

“We now plan to deliver low-to-mid-single-digit comparable sales growth for the group in 2021,” he said, instead of the low single-digit sales growth the company previously predicted for the year.

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The expected growth will build on several significant steps Philips took to expand its reach in the first quarter. Most recently, the company received FDA clearance for its SmartCT software, which adds 3D imaging capabilities to the company’s recently revamped Azurion image-guided therapy platform.

Philips also joined forces with Orbita, which develops conversational artificial intelligence software, to add HIPAA-compliant virtual assistants to Philips’ telehealth products.

“Our growth momentum is driven by our portfolio of innovative solutions, for example in the areas of precision diagnosis, image-guided therapy and telehealth,” van Houten said. “Moreover, we continued to add long-term strategic partnerships with hospitals on the back of more than 50 new partnerships we signed in 2020. This illustrates our ability to meet the needs of today’s hospital leaders, across the globe, as they plan for the future.”