Samsung Q3 profit slumps 17% amid Note7 phone crisis

A notice is displayed at a Samsung Electronics Co. kiosk providing rental phones for users of the Galaxy Note7 smartphone at Incheon International Airport in Incheon, South Korea, on Oct 25, 2016.
A notice is displayed at a Samsung Electronics Co. kiosk providing rental phones for users of the Galaxy Note7 smartphone at Incheon International Airport in Incheon, South Korea, on Oct 25, 2016. PHOTO: BLOOMBERG

SEOUL (BLOOMBERG) - Samsung Electronics reported a 17 per cent slump in third-quarter profit after the demise of its fire-prone Note7 line threw the world's largest smartphone maker into disarray.

Scores of reports about battery fires and explosions forced Samsung to kill its most profitable model this month, punctuating its worst corporate crisis to date. Net income fell to 4.41 trillion won (S$5.4 billion) in the September quarter as the company dealt with a debacle that may ultimately cost more than US$6 billion.

Still, earnings came in higher than the 3.9 trillion-won average projection from analysts surveyed by Bloomberg News.

While the Note7 crisis has cast a pall over the smartphone division, the display and chip businesses - which supply screens and memory to TV makers and rival phone brands - have held up well. Its shares have gone on a roller-coaster ride since the Note7 recall began in September, at one point shedding more than US$20 billion of market value.

The company says capital expenditure this year will be 27 trillion won.

Final operating profit was 5.2 trillion won on sales of 47.8 trillion won.

Samsung shares fell 1.9 percent to 1,567,000 won in Seoul Wednesday, before the earnings release.

The stock remains up about 24 per cent this year.

Samsung, rushing to get the Note7 to market ahead of Apple's next iPhones, introduced a device prone to overheating, as a string of graphic online photos and reports from consumers around the world showed. The device has drawn lawsuits from incensed customers and tarnished a brand Samsung spent billions burnishing. The company's now counting on the next iteration of its Galaxy S phone, expected in the first quarter, to help it regain its footing against Apple.

The mobile unit posted an operating profit of 100 billion won, a record low and down from 2.4 trillion won a year earlier.

Note7 recall impact will linger at least until early next year when the new Galaxy S model is expected, says Lee Do-hoon, an analyst at CIMB Securities in Seoul.

Operating income at the chip unit was 3.37 trillion won, compared with 3.7 trillion won a year earlier. A rise in memory chip prices as well as new products from device makers including Apple and Chinese manufacturers helped the division fare better in the quarter compared with its other businesses.

Although the Note7 recall hurt sales of organic light emitting diode or OLED displays, prices of older-generation liquid crystal displays are on the rise. Operating income from the display unit was 1.02 trillion won, up from 930 billion won.

Samsung's biggest growth drivers will be its components businesses, including Nand flash chips and Oled displays, Kim Young-woo, an analyst with SK Securities Co., wrote last week.  Mr Kim expects Samsung to adopt a new design for the S model early next year, while the Note series will be replaced with foldable devices.