Note7 saga to cost Samsung $7.4b

Customers returning their Samsung Note7 mobile phones at a dealership in Seoul yesterday. Samsung shares have slumped more than 8 per cent this week, wiping about US$20 billion (S$28 billion) from their market value.
Customers returning their Samsung Note7 mobile phones at a dealership in Seoul yesterday. Samsung shares have slumped more than 8 per cent this week, wiping about US$20 billion (S$28 billion) from their market value.PHOTO: AGENCE FRANCE-PRESSE

With mobile division's profit also hit, firm said to have lost about one-quarter of income

SEOUL • The financial burden of Samsung Electronics' Note7 crisis is becoming clearer, as South Korea's largest company tallies the cost of recalling and terminating production of the fire-prone smartphone.

The company disclosed yesterday a negative impact of approximately the medium range of 3 trillion won (S$3.8 billion) on operating profit to March, on top of an already announced US$2.3 billion cut for the preceding period.

The total of US$5.3 billion (S$7.4 billion) is in line with analysts' estimates. Nomura Holdings analyst Chung Chang Won had estimated the Note7 termination would cost the company US$5 billion in operating profit to 2017. Investors seem to have factored in an impact of that magnitude, and Samsung shares rose 1.3 per cent to 1.577 million won at the close in Seoul.

Korea Investment & Securities analyst Yoo Jong Woo said: "Samsung just has to bear it... The top priority is to rebuild trust."

With the dent in revenue, operating profit will be lower by mid-2 trillion won in the fourth quarter and about 1 trillion won in the first three months of next year, Samsung said.

In addition to the announcements, the company had already reported lower-than-projected profit from the mobile division in the prior quarter, partly reflecting the impact of the first few weeks of the Note7 recall. With that factored in, the "costs for the Note7 crisis totals about 7 trillion won, and that means Samsung has lost about one quarter of income," Mr Yoo said.

Samsung shares have slumped more than 8 per cent this week, wiping about US$20 billion from their market value. That has also attracted investors who are betting that the company is moving fast enough to deal with the debacle and that it offers long-term value.

The company said it plans to make up for lost revenue by expanding sales of flagship models such as the Galaxy S7 and Galaxy S7 Edge.

Samsung has been struggling with the fallout from the troubled Note7 phones, which were overheating and catching fire even after a recall that was supposed to fix the problem. The company said on Tuesday that it would kill this generation of the high-end phone.

Samsung and vice-chairman Jay Lee are struggling to contain fallout from the troubled Note7 phones. The debacle is testing Samsung's management and raising questions about whether it needs stronger leadership.

Daishin Securities' Park Kang Ho said: "Samsung will now try its best to do better in other divisions, including semiconductors, and it will also try hard to promote sales of S7s because there are no alternative Galaxy devices until the first quarter of next year."

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A version of this article appeared in the print edition of The Straits Times on October 15, 2016, with the headline 'Note7 saga to cost Samsung $7.4b'. Print Edition | Subscribe