Samsung sees further $3B profit hit from Note 7 crisis

SEOUL - Samsung on Friday said the crisis over its exploding Note 7 smartphones would cost another $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 $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 ($2.2 billion) won range" and 1.0 trillion won for the first quarter of 2017.

"Moving forward, Samsung Electronics plans to normalize 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 $10 billion and $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," Roh 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 percent at the opening bell, but then recovered to move into positive territory, up 0.5 percent.

source: www.abs-cbnnews.com

Samsung mobile recovery suffers blow as Galaxy Notes 'catch fire'

SEOUL - The recovery in Samsung Electronics Co. Ltd.'s mobile business suffered a blow on Thursday as reports of exploding batteries forced the firm to delay shipments of Galaxy Note 7 smartphones, and knocked $7 billion off its market value.

Investors drove the stock to two-week lows after the global smartphone leader told Reuters late on Wednesday the shipments had been delayed for quality control testing, and that shipments to South Korea's top three mobile carriers had been halted.

Faults with the new premium flagship device could deal a major blow to the South Korean giant, which was counting on the Galaxy Note 7 to maintain its strong mobile earnings momentum against Apple Inc's new iPhones expected to be unveiled next week.

"This is some major buzz-kill for Samsung, especially given all of the hard-earned excitement that products like the Note 7 have been garnering lately," IDC analyst Bryan Ma said.

"The pending Apple launch puts all the more pressure for them to contain this quickly. The timing of this couldn't have been worse."

Samsung did not comment on what problem it was trying to address or whether other markets were affected besides South Korea.

Sister company Samsung SDI Co Ltd said that while it was a supplier of Galaxy Note 7 batteries, it had received no information to suggest the batteries were faulty.

Several people posted images and videos of charred Galaxy Note 7s online and said their phones had caught on fire.

"Be careful out there, everyone rocking the new Note 7, might catch fire y'all," one user said in a YouTube clip showing a burnt Note phone. It was not immediately possible to confirm the veracity of the clip.

Samsung's shares, which hit a record high of 1.694 million won last week, fell 2 percent, and Samsung SDI tumbled 6.1 percent, versus a 0.1 percent fall for the broader market .

Several South Korean media reports, without citing direct sources, said Samsung would soon announce a plan to recall affected Note 7 phones and replace their batteries as opposed to giving the users a new device. A Samsung spokesman declined to comment on the reports.

DAMAGE CONTROL

Last year, production problems for the curved displays for the Galaxy S6 edge model resulted in disappointing sales, and Samsung risks a repeat this year if it cannot address the Galaxy Note 7 problems quickly.

Its mobile profit is on track to post annual growth for the first time in three years, thanks to robust sales of the Galaxy S7 and S7 edge devices that it launched in March to critical acclaim.

The Galaxy Note 7 received similar praise, raising expectations for strong sales in the second half. Samsung said in August demand for the new handset, priced at 988,900 won ($882) in South Korea, was far exceeding supply, pushing the firm to delay the launch in some markets.

HDC Asset Management fund manager Park Jung-hoon said it now appeared inevitable that Samsung's smartphone average selling price and profits would miss lofty second-half expectations.

"Apple is supposed to show off the iPhone 7 next week and this issue has emerged, so the current state of things do not look good," he said.

Though a components pick-up will buttress overall profits, Park said mobile operating profit might decline by up to 200 billion won for July-September.

The mobile division accounted for about 54 percent of Samsung Electronics' January-June operating profit of 14.8 trillion won.

Hyundai Securities said in a report that the Galaxy Note 7's problems should be resolved within a "few weeks".

The brokerage retained its third-quarter operating profit forecast of 8.5 trillion won.

source: www.abs-cbnnews.com