Sam­sung slashes Q3 profit es­ti­mate af­ter re­call cri­sis

Ex­perts say fault may have been with un­der­ly­ing tech­nol­ogy

Kuwait Times - - TECHNOLOGY -

Sam­sung Elec­tron­ics yes­ter­day slashed its lat­est quar­terly profit es­ti­mate by one third in the wake of a highly dam­ag­ing re­call cri­sis that ended with the scrap­ping of its lat­est flag­ship smart­phone.

In the first in­di­ca­tion of just how much the Galaxy Note 7 fi­asco might end up cost­ing the world’s largest smart­phone maker, Sam­sung re­vised its op­er­at­ing forecast for the third quar­ter to 5.2 tril­lion won ($4.6 bil­lion), com­pared to the 7.8 tril­lion won it an­nounced just last week.

The com­pany said the re­vi­sion re­flected the ex­pected im­pact on sales and earn­ings of its de­ci­sion on Tues­day to per­ma­nently dis­con­tinue pro­duc­tion of the Note 7. Song Myung-Sup, an an­a­lyst at Hi In­vest­ment & Se­cu­ri­ties, said the im­pact would be felt for many quar­ters to come.

“Halted pro­duc­tion of the Note 7 will dam­age Sam­sung’s brand im­age and trust and even­tu­ally hurt fu­ture sales of its smart­phones,” Song said. “Given that it needs to spend more on re­search, de­vel­op­ment, in­spec­tion and mar­ket­ing down the road, this cri­sis will af­fect its earn­ings un­til late 2017,” he added.

The com­pany also slashed its third-quar­ter sales es­ti­mate by four per­cent to 47 tril­lion won from 49 tril­lion won. The an­nounce­ment came af­ter the close of trade Wed­nes­day which saw Sam­sung’s share price fall 0.7 per­cent, fol­low­ing an 8.0 per­cent plunge the day be­fore.

Yes­ter­day’s re­vi­sion would re­flect a 30-per­cent drop in Sam­sung’s quar­terly op­er­at­ing profit from a year ago, com­pared to a 5.5-per­cent rise ac­cord­ing to the ear­lier es­ti­mate. 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 scrap the Note 7 line en­tirely. The com­pany blamed faulty bat­ter­ies made by an un­named sup­plier-widely be­lieved to be its sis­ter com­pany Sam­sung SDI.

But re­ports in the Wall Street Jour­nal and Fi­nan­cial Times cited an­a­lysts, ex­perts and other sources who sug­gested the fault may have been with the un­der­ly­ing tech­nol­ogy-pos­si­bly the pro­ces­sor or volt­age con­trol sys­tem.

“If you try to charge the bat­tery too quickly it can make it more vo­latile. If you push an en­gine too hard, it will ex­plode. Some­thing had to give,” a source who had spo­ken to Sam­sung ex­ec­u­tives told the Fi­nan­cial Times.

Dis­con­tin­u­ing the Note 7 leaves Sam­sung ex­tremely vul­ner­a­ble as the highly-com­pet­i­tive market for pre­mium smart­phones en­ters the hol­i­day buy­ing sea­son. Arch-ri­val Ap­ple launched its lat­est iPhone 7 last month, and Google just came out with its Pixel smart­phone, which runs on the same An­droid soft­ware as Sam­sung’s de­vices.

Nu­mer­ous an­a­lysts have sug­gested that the rush to re­lease the Note 7 ahead of the iPhone 7 left Sam­sung’s en­gi­neers lit­tle time to test the de­vice’s new built-in bat­tery. The Note 7 was meant to un­der­pin growth this year as Sam­sung strug­gles to boost sales, squeezed by Ap­ple in the high-end sec­tor and Chi­nese ri­vals in the low-end market as profit has stag­nated. —AFP

SEOUL: Two women wear­ing tra­di­tional han­bok dresses pose for a selfie be­fore Gyeong­bok­gung palace in Seoul yes­ter­day. Sam­sung Elec­tron­ics slashed its lat­est quar­terly profit es­ti­mate by one third in the wake of a highly dam­ag­ing re­call cri­sis that ended with the scrap­ping of its lat­est flag­ship smart­phone. —AFP

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