Samsung Electronics estimates $2.3B loss over Galaxy Note 7 woes
SEOUL, SOUTH KOREA— Samsung Electronics slashed its third-quarter profit estimate by a third on Wednesday, revising the figure to absorb more than $2 billion (U.S.) in losses from its decision to end production of its troubled Galaxy Note 7 smartphone and recall millions of devices around the world.
Samsung, the world’s largest smartphone maker by market share, said it was compelled to revise its estimates to reflect an estimated $2.3-billion loss from its decision to ditch the Galaxy Note 7. It was already one of the largest and costliest product recalls in the technology industry.
True scale of financial losses hard to quantify due to damage to Samsung’s brand name and negative publicity
Samsung’s woes began in August with a growing number of consumer reports that Galaxy Note 7 phones were heating up and catching fire. In an unprecedented decision in the smartphone market, Samsung said on Sept. 2, that it would recall as many as 2.5 million Galaxy Note 7s around the world while it tried to fix what it called a defective battery.
Samsung appeared to bring the crisis under control when it shipped replacement Galaxy Note 7s with batteries that it said were safe. Its earnings reports released last week had reflected losses from that decision.
But consumers began saying that some of the phones with replacement batteries were catching fire, too. Carriers in the United States and elsewhere began suspending sales of new Galaxy Note 7s.
And over the past week, Samsung temporarily stopped its production of Galaxy Note 7s, suspended sales of the phones around the world, and then, on Tuesday, killed production of the model entirely.
In the new earnings report, Samsung said it earned 5.2 trillion won in the third quarter, 33.3 per cent less than the 7.8 trillion won profit it had estimated last week. It said it had also cut its sales estimate for the quarter by 2 trillion won, to 47 trillion won.
The revised profit for the third quarter marked a 29.6-per-cent drop from the same quarter last year. Samsung shares ended Wednesday’s trading 0.65 per cent down, after suffering an 8-per-cent fall on Tuesday.
Samsung has not said what caused the fires in the Galaxy Note 7, one of the company’s most ambitious products in recent years, a gadget packed with innovations it had hoped would help it compete with Apple in the high-end smartphone market.
Strategy Analytics, a research company, had estimated that Samsung could lose more than $10 billion because of the phone’s troubles. Analysts said the true scale of the financial losses from the Galaxy Note 7 problems was hard to quantify, given the damage to Samsung’s brand name and negative publicity that could drive consumers away from the company’s other products.