Profit hit


Sam­sung sees $5.3b profit hit from Note 7.

The fi­nan­cial bur­den of Sam­sung Elec­tron­ics Co’s Note 7 cri­sis is be­com­ing clearer, as South Korea’s largest com­pany tal­lies the cost of re­call­ing and ter­mi­nat­ing pro­duc­tion of the fire-prone smart­phone.

The Su­won-based com­pany dis­closed on Friday a neg­a­tive im­pact of ap­prox­i­mately 3 tril­lion won ($3 bil­lion) on op­er­at­ing profit through March 2017, on top of an al­ready an­nounced $2.3 bil­lion cut for the pre­ced­ing pe­riod.

The to­tal of $5.3 bil­lion is in line with an­a­lysts’ es­ti­mates. Chung Chang-Won atNo­mura Hold­ings Inc had es­ti­mated that the Note 7 ter­mi­na­tion would cost the com­pany about $5 bil­lion in op­er­at­ing profit through 2017. In­vestors ap­pear to have fac­tored in an im­pact of that mag­ni­tude, and Sam­sung shares rose 1.3 per­cent to 1.577 mil­lion­wonat the close in Seoul.

“Sam­sung just has to bear it,” said Yoo Jong-Woo, an an­a­lyst at Korea In­vest­ment & Se­cu­ri­ties Co. The top pri­or­ity is to “re­build trust,” he said.

With the dent in rev­enue, op­er­at­ing profit will be lower by 2 tril­lion won in the fourth quar­ter and about 1 tril­lion won in the first three months of 2017, Sam­sung said.

In ad­di­tion to the an­nounce­ments, the com­pany had al­ready re­ported lower-than-pro­jected profit from the mo­bile di­vi­sion in the prior quar­ter, partly re­flect­ing the im­pact of the first few weeks of the Note 7 re­call. With that fac­tored in, the “costs for the Note 7 cri­sis to­tals about 7 tril­lion won, and that means Sam­sung has lost about one quar­ter of in­come,” Yoo said.

Sam­sung shares slumped more than 8 per­cent this week, wip­ing about $20 bil­lion from its mar­ket value. That has also at­tracted in­vestors who are bet­ting that the com­pany is mov­ing fast enough to deal with the de­ba­cle and that it of­fers long-term value.

The com­pany said it plans to make up for lost rev­enue by ex­pand­ing sales of flag­ship mod­els such as the Galaxy S7 and Galaxy S7 Edge. Sam­sung has been strug­gling with the fall­out from the trou­bledNote 7 phones, which were over­heat­ing and catch­ing fire even af­ter a re­call that was sup­posed to fix the prob­lem. Sam­sung said on Tues­day it would kill this gen­er­a­tion of the high-end phone.

Sam­sung and Vice Chair­man Jay Y. Lee are strug­gling to con­tain fall­out from the trou­bled Note 7 phones. The de­ba­cle is test­ing Sam­sung’s man­age­ment and rais­ing ques­tions about whether it needs stronger lead­er­ship.

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