Sam­sung’s Note re­call could hurt bot­tom line say an­a­lysts

The Myanmar Times - - International Business -

EXPLODING bat­ter­ies and an em­bar­rass­ing re­call of a flag­ship gad­get dur­ing a con­tro­ver­sial, closely watched lead­er­ship tran­si­tion – it’s been a bad year for Sam­sung, and an­a­lysts warn the trou­ble isn’t over yet.

With ever-fiercer com­pe­ti­tion in the sat­u­rated smart­phone mar­ket, South Korea’s big­gest firm is des­per­ate to avoid a full-blown dis­as­ter that could cost bil­lions, ham­mer its rep­u­ta­tion and taint its new lead­er­ship.

Just weeks af­ter the early roll out of the Galaxy Note 7 “ph­ablet”, the world’s largest maker of smart­phones was forced to re­call 2.5 mil­lion units glob­ally fol­low­ing com­plaints its bat­tery ex­ploded while charg­ing.

“Sam­sung ap­pears to have rushed fast to roll out the Note 7 with the iPhone 7 in mind ... and it is pay­ing a hefty price now,” said Greg Roh, an­a­lyst at Seoul-based HMC In­vest­ment & Se­cu­ri­ties.

With images of charred phones flood­ing so­cial me­dia, the un­prece­dented re­call was a hu­mil­i­a­tion for a firm that prides it­self as an icon of in­no­va­tion and qual­ity – and the tim­ing of the cri­sis could not be worse.

The Note 7 was meant to un­der­pin growth as Sam­sung strug­gles to boost sales, squeezed by Ap­ple in the high-end sec­tor and Chi­nese ri­vals in the low-end mar­ket.

One bright spot this year was the flag­ship hand­set Galaxy S7, which earned rave re­views and boosted op­er­at­ing profit to a two-year high in the sec­ond quar­ter. The Note 7 was cru­cial to sus­tain­ing that mo­men­tum.

The re­call, cur­rently un­der­way in 10 na­tions, could cost the firm US$3 bil­lion in the long run, while Mr Roh warned the fall­out could sig­nif­i­cantly hurt profit for months.

The cri­sis has also shaved $15 bil­lion off its mar­ket value since late Au­gust, when the firm’s share price hit the high­est point so far this year.

While un­con­nected, Sam­sung said last week it had sold shares in four tech­nol­ogy com­pa­nies to free up money, in a move it said was “aimed at fo­cus­ing on our core busi­ness”.

Sam­sung and its sis­ter firms have in re­cent years di­vested from non­core op­er­a­tions as the par­ent Sam­sung Group sought to stream­line busi­ness amid a gen­er­a­tional power trans­fer in the found­ing Lee fam­ily.

As the re­call threat­ens to drag on, it is un­clear how long the cri­sis would plague the firm, said Lee Se­ung-Woo of IBK In­vest­ment & Se­cu­ri­ties.

While the fi­nan­cial hit will likely be huge, a big­ger worry for the firm is the ef­fect on the Sam­sung name, said Linda Sui, an­a­lyst at mar­ket re­search firm Strat­egy An­a­lyt­ics.

“In ad­di­tion to ma­te­rial loss by rev­enue and prof­itabil­ity, po­ten­tial dam­age on brand im­age and con­sumer con­fi­dence is even worse and hard to fix up in the short-term,” she said.

“The Korean gi­ant is fac­ing a tough time now,” she said, warn­ing of “fall­ing for­tune and tough com­pe­ti­tion” un­til it rolls out an­other flag­ship model next year.

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