Here's why the Galaxy Note7 recall likely won't kill Samsung
Samsung is in trouble. The world’s largest smartphone maker took a $5.3 billion hit and saw its mobile division’s earnings drop by 96% in the last quarter after its Galaxy Note7 recall. But the South Korean tech titan could turn around its fate rather quickly.
To be clear, the Note7 has been an outright disaster. Not only did Samsung have to recall the Note7 because it sometimes caught on fire, but its replacement phones also turned out to have same problem. It also certainly doesn’t help that Samsung has to ship fireproof boxes to consumers who want to return their Note7s.
The fact that the handset is banned on everything from buses to planes doesn’t make things any easier, nor does Barack Obama making jokes about the Note7 being a fire hazard. And to top it all off, Samsung still doesn’t know exactly why the Note7 is catching fire.
So yeah, things look pretty bad for Samsung right now.
But, things aren’t all doom and gloom. First, it’s important to point out that the Note7 is only one of Samsung’s premium smartphones. And during its recent earnings call, Samsung said that, despite the Note7 debacle, its Galaxy S7 and S7 Edge continue to sell well. As a result, Samsung is increasing production of its Galaxy S series phones. In fact, the S7 is expected to help buoy Samsung’s mobile division with the recall of the Note7.
Samsung’s loss isn’t Apple’s gain
The going theory was that the Note7’s demise would be a boon for Apple, the thought being that customers annoyed by Samsung’s handling of the Note7 situation would instead opt for Apple’s 5.5-inch iPhone 7 Plus. Unfortunately for Apple, the iPhone 7 Plus is in short supply, which means fewer people who want the new phone can actually buy it.
Beyond simple product availability, consumers may also be hesitant to switch from an Android device to an iOS device like the iPhone. Sure, Apple has made the process more convenient by creating an app that lets you transfer your text message history, photos and contacts from your Android device to your new iPhone. But all of the apps you previously bought through the Google Play store and all of the music and movies you bought through Google Play Music and Google Play Movies will go out the window.
A new Galaxy is coming
Meanwhile, Samsung, perhaps optimistically, predicts its sales will rebound in Q4 2016 to about the same numbers the company saw in Q4 2015. That might seem unlikely at first, but it could very well be true. That’s because smartphone sales typically peak in Q4 due to the holiday shopping season.
“Q4 tends to be an up quarter for most vendors due to seasonality,” Nguyen explained. “Moreover, if [Samsung] took a hit this quarter in terms of sales volume, next quarter should look relatively better anyway.”
Samsung says it will further reinvigorate its mobile division with the release of new flagship smartphones in 2017, which will likely include the company’s Galaxy S8 and maybe even a new Note device. However, it would probably be wise for Samsung to bury the Note brand altogether, since the name is little more than a punchline now.
But let’s put aside the fact that Samsung is working on new premium phones. In fact, let’s forget about high-end smartphones entirely, because, as Nguyen points out, Samsung also has a collection of mid- to low-range smartphones it can lean on.
And while those phones offer lower margins than the company’s premium offerings, Samsung recently chose to pare down its mid- and low-range phones in order to streamline its product line and cut costs — which translates to slightly better margins.
Breaking through the roadblocks
Obviously the largest roadblock for a speedy recovery for Samsung has to do with the public’s perception of the company. Surprisingly, though, things don’t looks quite as grim as one might expect.
In a survey conducted by IDC Research involving consumers who currently, previously, or never owned a Samsung smartphone, the majority of respondents said the Note7 recall would have no impact on their decision to purchase other non-smartphone Samsung products in the future. What’s more, respondents largely had neutral to positive views of Samsung’s response to the Note7 matter.
That said, of the 24 Note7 owners IDC interviewed, half said they would buy an iPhone to replace their Note.
As IDC’s William Stofega put it, if Samsung can put the Note7 issue out of the public’s mind in about 6 months, the company will be able to recover without issue. Any longer, though, and Samsung will suffer lasting damage.
“At the end of the day,” Stofega said, “Samsung isn’t a company that’s going to give up. They’ll have a new product. … Memories are long and people remember things, but you think of other companies like Toyota and Chevy — these companies bounce back.”
So while things may look dire for Samsung at the moment, don’t expect it to stay that way.
More from Dan:
I got my hands on Microsoft’s $3,000 PC that’s also a giant tablet
The one obvious problem with Apple’s new self-driving car plan
Email Daniel at dhowley@yahoo-inc.com; follow him on Twitter at @DanielHowley.
