Philips Recoups €186M in Tariff Refunds Amid Q2 Cost Pressures and China Market Shifts

• Philips recouped €186 million (∼$212 million) from U.S. tariff refunds in Q2, nearly completing the process.

• Cost inflation, tariffs, and currency effects dragged on margins; e-component prices and freight costs rose significantly.

• China's centralized procurement expansion caused market turmoil, prompting a selective go-to-market strategy focused on innovative products.

• North America and Europe demand accelerated faster than expected; India posted double-digit growth and is seen as an untapped prospect.

Tariff Refund and Cost Pressures

Philips largely completed the U.S. tariff refund process in the second quarter, recovering 186 million euros (approximately $212 million) of previously paid tariffs. CEO Roy Jakobs noted on the earnings call that the pace demonstrated “the agility of our teams in a changing environment.” The refunds follow the Supreme Court’s decision to strike down many Trump-era tariffs on medical devices imported from China, which had initially cost Philips up to 300 million euros.

Despite the relief, Philips faces persistent cost inflation. CFO Charlotte Hanneman said the company’s inflation forecast “has ticked up slightly” from a prior high-single-digit prediction. Prices of electronic components have risen “significantly,” with no hedging protection, while Middle East tensions have driven freight costs higher. Energy costs also rose, though hedges partially offset that impact.

China Market Challenges

China's expanded centralized procurement policy continues to disrupt the market. Jakobs described “turmoil” as hospitals and suppliers adapt to the new system, causing delays. Margin pressures on undifferentiated technologies have forced Philips to adopt “a very selective go-to-market approach” focusing on innovative products. Third-quarter comparable sales growth is expected to hit the lower end of the full-year range partly due to these headwinds.

Regional Performance: North America, Europe, and India

Philips is finding growth elsewhere. North America saw only a 1% order intake decline in Q2, attributed to a few deals pushed to Q3 rather than a demand slowdown. Europe's investment climate is improving, with deals in the Nordic region and strengthening momentum in Central Europe. The U.K. healthcare system, though challenged, is investing in digital service delivery.

India delivered a double-digit contribution and Jakobs called it “a really exciting growth prospect that actually we have only started to untap.” The company is in talks with the Indian government about deploying its devices, including AI systems, in hospitals.

Outlook

Philips expects Q3 comparable sales growth at the lower end of its full-year range. Management is ramping up mitigation actions against cost inflation and remains focused on commercial execution in high-growth regions. The tariff refund provides a one-time cash benefit, but structural challenges in China and input-cost inflation remain key headwinds.