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October 14, 2016

Note 7 scandal to wipe more than $4bn from Samsung profits

The consequences of the global recall of the Note 7 smartphone are just beginning to be seen.

By Hannah Williams

Samsung Electronics is expecting its bottom line to be hit to the tune of £4bn as the exploding Note 7 saga continues. The Korean smartphone maker made the announcement in a second profit warning, revealing that the Glalaxy Note 7 recall would reduce profits by at least 3trn won, or £2.2bn.

The company had already allocated an expected direct cost from the loss of the exploding Galaxy Note7 sales in its third quarter earnings guidance revision announced on October 11th, reducing its operating profit estimate by £1.9bn.

Samsung was thrown into chaos after the world’s largest smartphone maker was forced to recall 2.5 million Note 7 devices. The recall was issued after users reported of devices exploding, thought to be caused by overheating batteries.

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Samsung has offered to compensate all users affected by the recall, with Tim Baxter, Samsung Electronics America’s president and chief operating officer, saying to the Guardian:

“We appreciate the patience of our customers, carriers and retail partners for carrying the burden during these challenging times. We are committed to doing everything we can to make this right.”

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.

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Additionally, the company will focus on enhancing product safety for consumers by making significant changes in its quality assurance processes.

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