Samsung Electronics Co Ltd 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.
Samsung 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, Samsung 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.
Samsung posted earnings of $7.2 billion in the second quarter, with mobile profits – its biggest earner – soaring 57 percent. 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.