Nov. 22 (Bloomberg) -- Royal Philips Electronics NV, the world’s largest maker of patient-monitoring systems, plans to cut about 1,600 jobs at its health-care unit as it seeks to protect profit margins.

Philips will reduce about 5 percent of the unit’s global workforce of 32,000, Arent Jan Hesselink, a spokesman for the Amsterdam-based company, said today in a telephone interview. He declined to comment further on the matter.

The International Monetary Fund predicted two weeks ago that advanced economies will contract next year for the first time since World War II. Manufacturing and service industries in the euro area shrank at the fastest pace in at least a decade this month.

“As Philips needs to put in an extra effort to keep getting orders and therefore make concessions, management can only cut jobs to keep the margins up to the mark,” said Wing-Yen Choi, an analyst at Theodoor Gilissen Bankiers NV in Amsterdam, who recommends investors buy the stock.

Profitability at the health-care unit, in which Philips invested about 4 billion euros ($5 billion) this year, fell in the third quarter on lower sales and declining prices for imaging systems in the U.S.

Earnings before interest, tax and amortization at the health-care division dropped to 10.9 percent of sales, Philips said on Oct. 13. It also said it will increase some prices and accelerate the reduction of expenditures to protect margins. The moves will cost as much as 230 million euros, which will be booked in the fourth quarter.

U.S. Factories

Dutch newspaper Eindhovens Dagblad reported the staff reductions at Philips, which has a total workforce of about 110,000, earlier today. The health-care unit has factories in the U.S., Germany, Finland, Israel and the Netherlands.

The Dutch government plans to spend more than 1 percent of gross domestic product, or about 6 billion euros, to stimulate the nation’s economy. The measures will include temporarily subsidizing company payrolls and speeding up infrastructure spending, Prime Minister Jan Peter Balkenende said yesterday.

To contact the reporter on this story: Martijn van der Starre in Amsterdam at vanderstarre@bloomberg.net

Last Updated: November 22, 2008 10:53 EST