Business

Samsung warns of $5.3bn blow to profits from Galaxy Note 7 disaster

A customer uses his Samsung Electronics' Galaxy Note 7 as he waits for an exchange at company's headquarters in Seoul, South Korea, October 13, 2016. REUTERS/Kim Hong-Ji

Samsung says it expects to take a $3 billion hit to its profits over the next two quarters in the outfall over its fire-prone Galaxy Note 7 smartphone. The electronics giant's announcement on Friday brings to about $5.3 billion the total losses it is expecting after withdrawing the phone from sale. To make up for the lost revenue, Samsung said it would expand sales of gadgets such as the Galaxy S7 and S7 edge phones. it also pledged to make "significant changes" in its quality assurance processes to improve product safety.

The end of the premium model will damage Samsung's brand, and hurt demand for its other models. It is difficult to measure such impact.

Kim Sung-soo, fund manager at LS Asset Management

Samsung has been braced for trouble after reports that its flagship phone could burst into flames. More than 2.5 million Galaxy Note 7 smartphones were recalled before the product was discontinued earlier this week just two months after its launch in August. Despite the blow to its earnings, the company is big enough to absorb the loss as it reeled in $7.2 billion profits in the second quarter, with mobile profits - its biggest earner - soaring 57%. However, analysts fear the recall may have done irreparable damage to the brand and its other products may not be able to plug the gap.

Samsung must announce clearly what the reason was and dispel uncertainty.

Park Jung-hoon, fund manager at HDC Asset Management
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Samsung is giving an incentive of a $100 credit to Note 7 owners who switch to another Samsung phone. However, the Note 7 device was one of the most expensive smartphones in the market, selling for between $850 and $890.

Samsung Electronics

Samsung Electronics Co., Ltd. is a South Korean multinational electronics company headquartered in Suwon, South Korea. Through extremely complicated ownership structure with some circular ownership it is the flagship division of the Samsung Group, accounting for 70% of the group's revenue in 2012.

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