You are here: Home » Reuters » News
Business Standard

Samsung flags $5.3 billion profit hit from Note 7 failure

Reuters  |  SEOUL 

By Hyunjoo Jin and Joyce Lee

SEOUL (Reuters) - Electronics Co Ltd on Friday said it expected to take a hit to its operating profit of about $3 billion over the next two quarters due to the discontinuation of its fire-prone Galaxy Note 7 smartphone.

The outlook brings to about $5.3 billion the total losses the global smartphone leader has forecast as a result of the overheating issues, after it said on Wednesday it would suffer a $2.3 billion hit to third-quarter profit.

The premium device that was meant to compete with Apple Inc's latest iPhones at the top end of the smartphone market had to be scrapped earlier this week, less than two months after its launch, due to safety fears.

The South Korean tech giant said in a statement on Friday it expected the blow to profit to be in the mid-3 trillion won over the next two quarters - in the mid-2 trillion won range in the October-December period and about 1 trillion won ($900 million) for the first quarter of 2017.

shares, which have fallen about 8 percent this week, edged up 0.6 percent as of 0228 GMT on Friday, versus a 0.5 percent gain on the broader market.

To make up for the lost revenue, said it would expand sales of gadgets like the Galaxy S7 and S7 edge phones, and make "significant changes" in its quality assurance processes to improve product safety.

Investors and analysts said that while the company had to move quickly to reassure the market about the potential financial costs, deeper losses from one of the tech industry's most spectacular product failures could not be ruled out.

Reputational damage remained the great unknown and potentially more harmful than recall costs, with rivals in the cut-throat industry eager to pounce on any sign of weakness in the market leader's standing among consumers.

"The sales impact on other models remains unclear," said Kim Sung-soo, a fund manager at LS Asset Management, which owns Electronics shares.

"The end of the premium model will damage Samsung's brand, and hurt demand for its other models. It is difficult to measure such impact."

posted earnings of $7.2 billion in the second quarter, with mobile profits - its biggest earner - soaring 57 percent.

REBUILDING TRUST

The Note 7 debacle has come at an awkward time for South Korea's biggest family-run conglomerate, which is in the middle of a leadership succession and is facing calls for a major restructuring from U.S. hedge fund Elliott Management.

Park Jung-hoon, a fund manager at HDC Asset Management which owns shares in affiliates, said that although future losses would not be as bad as the third quarter the company had to work hard to rebuild confidence.

"What's important is whether the flagship S7 can fill the gap left by the Note 7, and how much trust can regain from consumers by the time the S8 comes out," he said. Analysts expect the S8 to be released in the first quarter.

Key to brand recovery would be rapidly finding out and communicating what went wrong with the Note 7, which was recalled when some devices were found to be combustible and finally discontinued when customers reported similar faults in their replacements.

The company blamed faulty batteries for the original problem but it has given no inkling about the cause of overheating in the replacements.

"must announce clearly what the reason was and dispel uncertainty," Park said.

Investors were also expecting the company to show its "commitment to shareholders" by announcing share buybacks or higher dividends, he said.

has announced financial incentives for U.S. and South Korea customers who exchange Note 7s for other products, as part of efforts to stem customer defections.

($1 = 1,114.7500 won)

(Reporting by Se Young Lee and Hyunjoo Jin and Joyce Lee; Editing by Stephen Coates)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

RECOMMENDED FOR YOU

Samsung flags $5.3 billion profit hit from Note 7 failure

SEOUL (Reuters) - Samsung Electronics Co Ltd on Friday said it expected to take a hit to its operating profit of about $3 billion over the next two quarters due to the discontinuation of its fire-prone Galaxy Note 7 smartphone.

By Hyunjoo Jin and Joyce Lee

SEOUL (Reuters) - Electronics Co Ltd on Friday said it expected to take a hit to its operating profit of about $3 billion over the next two quarters due to the discontinuation of its fire-prone Galaxy Note 7 smartphone.

The outlook brings to about $5.3 billion the total losses the global smartphone leader has forecast as a result of the overheating issues, after it said on Wednesday it would suffer a $2.3 billion hit to third-quarter profit.

The premium device that was meant to compete with Apple Inc's latest iPhones at the top end of the smartphone market had to be scrapped earlier this week, less than two months after its launch, due to safety fears.

The South Korean tech giant said in a statement on Friday it expected the blow to profit to be in the mid-3 trillion won over the next two quarters - in the mid-2 trillion won range in the October-December period and about 1 trillion won ($900 million) for the first quarter of 2017.

shares, which have fallen about 8 percent this week, edged up 0.6 percent as of 0228 GMT on Friday, versus a 0.5 percent gain on the broader market.

To make up for the lost revenue, said it would expand sales of gadgets like the Galaxy S7 and S7 edge phones, and make "significant changes" in its quality assurance processes to improve product safety.

Investors and analysts said that while the company had to move quickly to reassure the market about the potential financial costs, deeper losses from one of the tech industry's most spectacular product failures could not be ruled out.

Reputational damage remained the great unknown and potentially more harmful than recall costs, with rivals in the cut-throat industry eager to pounce on any sign of weakness in the market leader's standing among consumers.

"The sales impact on other models remains unclear," said Kim Sung-soo, a fund manager at LS Asset Management, which owns Electronics shares.

"The end of the premium model will damage Samsung's brand, and hurt demand for its other models. It is difficult to measure such impact."

posted earnings of $7.2 billion in the second quarter, with mobile profits - its biggest earner - soaring 57 percent.

REBUILDING TRUST

The Note 7 debacle has come at an awkward time for South Korea's biggest family-run conglomerate, which is in the middle of a leadership succession and is facing calls for a major restructuring from U.S. hedge fund Elliott Management.

Park Jung-hoon, a fund manager at HDC Asset Management which owns shares in affiliates, said that although future losses would not be as bad as the third quarter the company had to work hard to rebuild confidence.

"What's important is whether the flagship S7 can fill the gap left by the Note 7, and how much trust can regain from consumers by the time the S8 comes out," he said. Analysts expect the S8 to be released in the first quarter.

Key to brand recovery would be rapidly finding out and communicating what went wrong with the Note 7, which was recalled when some devices were found to be combustible and finally discontinued when customers reported similar faults in their replacements.

The company blamed faulty batteries for the original problem but it has given no inkling about the cause of overheating in the replacements.

"must announce clearly what the reason was and dispel uncertainty," Park said.

Investors were also expecting the company to show its "commitment to shareholders" by announcing share buybacks or higher dividends, he said.

has announced financial incentives for U.S. and South Korea customers who exchange Note 7s for other products, as part of efforts to stem customer defections.

($1 = 1,114.7500 won)

(Reporting by Se Young Lee and Hyunjoo Jin and Joyce Lee; Editing by Stephen Coates)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

image
Business Standard
177 22

Samsung flags $5.3 billion profit hit from Note 7 failure

By Hyunjoo Jin and Joyce Lee

SEOUL (Reuters) - Electronics Co Ltd on Friday said it expected to take a hit to its operating profit of about $3 billion over the next two quarters due to the discontinuation of its fire-prone Galaxy Note 7 smartphone.

The outlook brings to about $5.3 billion the total losses the global smartphone leader has forecast as a result of the overheating issues, after it said on Wednesday it would suffer a $2.3 billion hit to third-quarter profit.

The premium device that was meant to compete with Apple Inc's latest iPhones at the top end of the smartphone market had to be scrapped earlier this week, less than two months after its launch, due to safety fears.

The South Korean tech giant said in a statement on Friday it expected the blow to profit to be in the mid-3 trillion won over the next two quarters - in the mid-2 trillion won range in the October-December period and about 1 trillion won ($900 million) for the first quarter of 2017.

shares, which have fallen about 8 percent this week, edged up 0.6 percent as of 0228 GMT on Friday, versus a 0.5 percent gain on the broader market.

To make up for the lost revenue, said it would expand sales of gadgets like the Galaxy S7 and S7 edge phones, and make "significant changes" in its quality assurance processes to improve product safety.

Investors and analysts said that while the company had to move quickly to reassure the market about the potential financial costs, deeper losses from one of the tech industry's most spectacular product failures could not be ruled out.

Reputational damage remained the great unknown and potentially more harmful than recall costs, with rivals in the cut-throat industry eager to pounce on any sign of weakness in the market leader's standing among consumers.

"The sales impact on other models remains unclear," said Kim Sung-soo, a fund manager at LS Asset Management, which owns Electronics shares.

"The end of the premium model will damage Samsung's brand, and hurt demand for its other models. It is difficult to measure such impact."

posted earnings of $7.2 billion in the second quarter, with mobile profits - its biggest earner - soaring 57 percent.

REBUILDING TRUST

The Note 7 debacle has come at an awkward time for South Korea's biggest family-run conglomerate, which is in the middle of a leadership succession and is facing calls for a major restructuring from U.S. hedge fund Elliott Management.

Park Jung-hoon, a fund manager at HDC Asset Management which owns shares in affiliates, said that although future losses would not be as bad as the third quarter the company had to work hard to rebuild confidence.

"What's important is whether the flagship S7 can fill the gap left by the Note 7, and how much trust can regain from consumers by the time the S8 comes out," he said. Analysts expect the S8 to be released in the first quarter.

Key to brand recovery would be rapidly finding out and communicating what went wrong with the Note 7, which was recalled when some devices were found to be combustible and finally discontinued when customers reported similar faults in their replacements.

The company blamed faulty batteries for the original problem but it has given no inkling about the cause of overheating in the replacements.

"must announce clearly what the reason was and dispel uncertainty," Park said.

Investors were also expecting the company to show its "commitment to shareholders" by announcing share buybacks or higher dividends, he said.

has announced financial incentives for U.S. and South Korea customers who exchange Note 7s for other products, as part of efforts to stem customer defections.

($1 = 1,114.7500 won)

(Reporting by Se Young Lee and Hyunjoo Jin and Joyce Lee; Editing by Stephen Coates)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

image
Business Standard
177 22

Upgrade To Premium Services

Welcome User

Business Standard is happy to inform you of the launch of "Business Standard Premium Services"

As a premium subscriber you get an across device unfettered access to a range of services which include:

  • Access Exclusive content - articles, features & opinion pieces
  • Weekly Industry/Genre specific newsletters - Choose multiple industries/genres
  • Access to 17 plus years of content archives
  • Set Stock price alerts for your portfolio and watch list and get them delivered to your e-mail box
  • End of day news alerts on 5 companies (via email)
  • NEW: Get seamless access to WSJ.com at a great price. No additional sign-up required.
 

Premium Services

In Partnership with

 

Dear Guest,

 

Welcome to the premium services of Business Standard brought to you courtesy FIS.
Kindly visit the Manage my subscription page to discover the benefits of this programme.

Enjoy Reading!
Team Business Standard