Samsung warns of 4bn hit to profits from Galaxy Note 7 fallout
Exploding phones take heavy toll on South Korean electronics firm, with safety crisis expected to dent customer loyalty
Samsung has issued its second profit warning this week after the withdrawal of its Galaxy Note 7 phone, increasing the estimated cost of the recall to its bottom line from 1.9bn to at least 4bn.
The South Korean electronics company said the crisis caused by the exploding Note 7 smartphones would reduce profits by at least 3tn won (2.2bn) in the six months to the end of March. It hopes it can boost sales of its other flagship handsets to cushion the impact.
The new profit warning comes just two days after the company slashed its operating profit estimate for the third quarter by 1.9bn. It takes total losses caused by the Note 7 fiasco to 4.1bn.
Analysts predict the Note 7 crisis could cost Samsung a lot more given the damage to its brand, with estimates ranging from $10bn to $20bn.
Greg Roh, an analyst at HMC Investment Securities, said Samsungs latest estimate doesnt take into account the huge marketing costs for Samsung to win back customer loyalty and to regain the trust of mobile carriers. It will have to spend a lot of money to recover and much work has to be done.
The worlds largest smartphone maker was forced to recall 2.5m Note 7 devices in early September after users around the world reported flames and explosions caused by overheating batteries.
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It initially insisted the replacement phones were safe, but after reports that they were catching fire as well Samsung announced on Tuesday that it would scrap the model entirely.
Samsung said: Moving forward, Samsung Electronics plans to normalise its mobile business by expanding sales of flagship models such as the Galaxy S7 and Galaxy S7 edge. It also vowed to focus on enhancing product safety for consumers by making significant changes in its quality assurance processes.
Read more: https://www.theguardian.com/business/2016/oct/14/samsung-galaxy-note-7-smartphone-profits-warning