Sam­sung Note 7 re­call to cost at least $5.3 bil­lion

Daily Freeman (Kingston, NY) - - BUSINESS - By Youkyung Lee

SEOUL, SOUTH KOREA >> Sam­sung Elec­tron­ics said Fri­day that the dis­con­tin­u­a­tion of the Galaxy Note 7 would cost the com­pany about $3 bil­lion dur­ing the cur­rent and next quar­ters, bring­ing the to­tal cost of the re­call to at least $5.3 bil­lion.

The Note 7 dis­con­tin­u­a­tion will cost in the mid-2 tril­lion won range dur­ing the Oc­to­ber-De­cem­ber period and an­other 1 tril­lion won ($884 mil­lion) dur­ing the Jan­uary-March quar­ter, the com­pany said in a state­ment.

Sam­sung al­ready slashed its third-quar­ter profit forecast by $2.6 bil­lion ear­lier this week, an amount that could wipe out its en­tire mo­bile busi­ness profit. That did not in­clude the cost of Sam­sung’s first re­call, which an­a­lysts es­ti­mated at 1 tril­lion won to 2 tril­lion won.

Sam­sung has enough cash and other busi­nesses to ab­sorb the shock from the phone re­call. It said it ex­pected to gen­er­ate 5.2 tril­lion won ($4.6 bil­lion) in op­er­at­ing in­come dur­ing the third quar­ter af­ter the re­call cost. An­a­lysts said most of the in­come will be gen­er­ated by sales of ad­vanced dis­plays and semi­con­duc­tors.

Sam­sung added that it will make sig­nif­i­cant changes in its qual­ity as­sur­ance pro­cesses to en­hance prod­uct safety for con­sumers. It did not elab­o­rate.

The com­pany said it will ex­pand sales of two other smart­phones released in spring, the Galaxy S7 and Galaxy S7 Edge, quash­ing ru­mors that it may try to re­lease up­dated ver­sions of those de­vices. Sam­sung usu­ally re­leases a new it­er­a­tion of the Galaxy S series in spring, so the com­pany may have to provide a strong in­cen­tive to sell the 6-mon­thold phones, such as low­er­ing their prices.

Due to un­ex­plained fires and over­heat­ing prob­lems, 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.

In the United States, 1.9 mil­lion Note 7 phones are sub­ject to the two re­calls. Sam­sung also re­called about 200,000 phones in China and about half a mil­lion phones in South Korea.

The U.S. Con­sumer Prod­uct Safety Com­mis­sion said there were 96 re­ports of bat­ter­ies in Note 7 phones over­heat­ing in the coun­try, in­clud­ing 23 new re­ports since the first re­call an­nounce­ment last month.

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