You are here
Samsung sees further US$3b profit hit from Note 7 crisis
[SEOUL] Samsung on Friday said the crisis over its exploding Note 7 smartphones would cost another US$3 billion-plus in lost profit over the next two quarters, but hoped expanded sales of its other flagship handset would help cushion the impact.
The profit warning came two days after the South Korean electronics giant slashed its operating profit for the third quarter by US$2.3 billion.
After a recall problem with the large-sized Galaxy Note 7 turned into a full-blown crisis, Samsung announced earlier this week that it was scrapping the model entirely - a devastating move for a company that prides itself on the quality production of cutting-edge technology.
On top of the third-quarter loss, Samsung said the drop in sales arising from the decision to discontinue the Note 7 would continue to impact profit margins during the October-March period - including the crucial holiday buying season.
It estimated operating profit loss in the fourth quarter at around the "mid-2 trillion (S$2.5 billion) won range" and 1.0 trillion won for the first quarter of 2017.
"Moving forward, Samsung Electronics plans to normalise its mobile business by expanding sales of flagship models such as the Galaxy S7 and Galaxy S7 edge," the company said in a statement.
Samsung announced a recall of 2.5 million units of the oversized Galaxy Note 7 smartphone in early September after several devices exploded or caught fire.
When replacement phones also started to combust, the company eventually decided to kill off the Note 7 for good.
The company blamed faulty batteries made by an unnamed supplier - widely believed to be its sister company Samsung SDI.
But numerous experts and analysts said the problem may have been with the handset's underlying technology, and Samsung's decision to rush the launch of the smartphone ahead of the latest iPhone from arch-rival Apple.
In its statement, Samsung vowed to "focus on enhancing product safety for consumers by making significant changes in its quality assurance processes." Industry analysts have suggested the Note 7 fiasco could end up costing Samsung anywhere between US$10 billion and US$20 billion, with a lot of the losses tied up with the harder-to-calculate damage done to brand reputation.
"And this figure doesn't take into account the huge marketing costs for Samsung to win back customer loyalty and to regain the trust of mobile carriers," said Greg Roh, an analyst at HMC Investment Securities.
"It will have to spend a lot of money to recover and much work has to be done," MrRoh said.
The stock market, which has largely factored in the inevitable profit hit Samsung will be forced to take, reacted calmly to Friday's announcement.
Samsung's share price dropped 0.4 per cent at the opening bell, but then recovered to move into positive territory, up 0.5 per cent.