Samsung cuts Q3 profit estimates by $2.3B on ending Note 7 production
Samsung Electronics on Wednesday cut its third-quarter operating profit estimates by $2.3 billion, suggesting the amount of damage done by ending production of the Galaxy Note 7.
Profits are now expected to come in at $4.63 billion, Samsung said in a regulatory filing seen by Bloomberg, all but eliminating the amount analysts anticipated the company's mobile division to contribute. One analyst with HMC Invesment Securities, Greg Roh, noted that the profit hit implies Samsung is calculating not just lost sales but the costs of dealing with stocked components and channel inventory.
The company could continue to suffer in later quarters, in no small part because the Note 7 was intended to be a challenger to Apple's iPhone 7 and other high-profile smartphones. While the Galaxy S7 and S7 Edge have proven popular, they were released in early 2016, and Samsung won't have any updated flagship phones until next year.
Over half of Samsung Electronics revenue comes from outside its mobile division, reducing some of the impact. In fact chip and display sales are thought to be on the upswing.
The Note 7 was only released in August but saw a disastrously short existence, with repeated battery fire incidents around the world. Samsung attempted a recall, but with even fixed units displaying the same problem, the company decided to kill off the product on Tuesday rather than risk its reputation.
Profits are now expected to come in at $4.63 billion, Samsung said in a regulatory filing seen by Bloomberg, all but eliminating the amount analysts anticipated the company's mobile division to contribute. One analyst with HMC Invesment Securities, Greg Roh, noted that the profit hit implies Samsung is calculating not just lost sales but the costs of dealing with stocked components and channel inventory.
The company could continue to suffer in later quarters, in no small part because the Note 7 was intended to be a challenger to Apple's iPhone 7 and other high-profile smartphones. While the Galaxy S7 and S7 Edge have proven popular, they were released in early 2016, and Samsung won't have any updated flagship phones until next year.
Over half of Samsung Electronics revenue comes from outside its mobile division, reducing some of the impact. In fact chip and display sales are thought to be on the upswing.
The Note 7 was only released in August but saw a disastrously short existence, with repeated battery fire incidents around the world. Samsung attempted a recall, but with even fixed units displaying the same problem, the company decided to kill off the product on Tuesday rather than risk its reputation.
Comments
The fact that, for the most part - and especially for the 7 Plus - they haven't been reducing, might be one measure
of just how much this is going to benefit iPhone.
"Samsung - Setting the World on Fire Since 2016"...
Like fireproof boxes, fireproof containers for shipping back to Korea, and extra fire and liability insurance to cover untold thousands of locations where the Note 7s are lurking, waiting to burn?
By the way, the best explanation if the problem I've seen so far was in the original Bloomberg report on the "rush to beat Apple" story, filed by their Korea-based staffers. They said the barreries are being squeezed too tightly by the case and components. Has anyone seen anything for or against this theory?
Edit: here's a quote from the Bloomberg story:
"Samsung engineers rushed to determine the cause of the problem, working through the Harvest Festival holiday last week. The company’s most complete explanations so far have come in reports to government agencies in Korea, China and the U.S. The initial conclusions indicated an error in production that put pressure on plates within the battery cells. That in turn brought negative and positive poles into contact, triggering excessive heat that caused the battery to explode.
"The chairman of the U.S. Consumer Product Safety Commission was more explicit when his agency announced an official recall on Thursday. He said the phone’s battery was slightly too big for its compartment and the tight space pinched the battery, causing a short circuit. “Clearly, they missed something,” said Anthea Lai, an analyst with Bloomberg Intelligence. “They were rushing to beat Apple and they made a mistake.”
That's still PROFIT, not a loss! This whole fiasco is barely going to affect them in the long run, darn it!
It could also result in some airlines refusing to ship lithium-ion-powered devices entirely, meaning they need to come by ship, train and truck.
Yes rushing to market does not help, it means Samsung did not do all the necessary testing, you can only compress testing time by so much before physics limits your ability to accelerate potential issues and then fix them. Samsung blaming the battery obviously was a rush to close the door on the issue. The problem and I am basing this on Samsung's own words, they have more than one manufacturers and it highly unlikely the all would have the same exact issue at the same time. I believe their charging algorithm or circuitry was the cause of the problem they were doing something to the battery which was causing damage to the cells which then shorted out. I also suspect it had something to do with the fast charge, you can only charge a battery so fast without doing damage the cells and the structure of the battery. It is going to take time for Samsung to figure out what exactly happen so it does not happen again.
Many believe needed space is unnecessarily sacrificed to the stylus and that the shape of the curved screen itself contributed to the failures. Also, the water-proof encasement retaining the scorching heat the processor produces next to this gargantuan battery essentially made this device the very definition of a bomb.
I read today that Samsung engineers still haven't been able to reproduce the problem & this itself delayed the recall & ultimately contributed to the decision to scrap the 7. Also battery engineers don't believe anymore that the battery itself is the culprit.
Whatever the verdict, it's clear Samsung threw safety to the wind & rushed out a device it intended to crush Apple with at any cost.
True to form Samsung. You're a Class Act that deserves a Class Action lawsuit for every Note7 sold.
Cutting $2.3bn from their forecast ain't chicken feed either. Especially as the negative halo impacts the brand overall n other sectors.
Now's the time for Apple to launch and OLED TV!
You can't accurately say, oh well they have all these other sources of profits. High end smart phones and tablets are a big deal for them -- hence the 33%.
I personally see another problem for Samsung: people who migrate from their products to a high end Google or Apple phone might not come back.
That's certainly been the case with Apple -- new users become habitual users generally (if not always).
We laugh but if this were Apple it would be a death blow to the company. Samsung is diversified enough to survive this hit. Even if they wind up leaving smartphone market all together they will survive. Just saying. Apple should be taking note of how easily this could happen with an engineering slip up.
Apples dependence on Samsung really sucks.