Fiery phone fallout: Samsung slashes Q3 profits by a third

12 Oct 2016

Samsung Q3 profits to fall by a third and investors want answers. Image: with God/Shutterstock

After what could be one of the costliest product safety failures in tech industry history, Samsung has slashed its Q3 quarterly profit estimate by a third.

Last week, Samsung claimed that the fiery phone fiasco around its Note7 smartphone recall would not have an impact on its bottom line.

But that was last week, before a disastrous weekend of revelations that showed replacement Note7 devices were also catching fire.

Now, the company has revealed that operating profit for the third quarter will be $4.6bn (or 5.2tn won), down 33pc, while revenues have been slashed by 2tn won down to 47tn won, or $41.8bn.

This would be the first year-on-year profit decline for Samsung.

Samsung shares have fallen 10pc this week and are on track for their biggest decline since May 2012.

Samsung investors want answers

The scrapping of the $882 (€798) flagship device could be one of the costliest product safety failures in tech industry history and surely heads are going to roll.

Some 2.5m Note7s had been recalled in early September and the situation appeared to be under control, until issues at the weekend saw Samsung pull the plug on production of the devices.

Overnight Samsung apologised to the public and emphasised that the battery safety issue was confined to Note7 devices.

It offered to replace Note7s with Galaxy S7 and S7 edge devices and refund the difference or offer full cash refunds.

The entire fiasco is expected to cost Samsung anything between $17bn and $22bn.

The company may need to move quick and release its next flagship device, the Galaxy S8 and S8 edge ahead of schedule. The launch typically takes place every February at the Mobile World Congress.

Meanwhile, rivals like Apple with its iPhone 7 and other rivals including Asian players Sony, Huawei and Xiaomi are likely to see a surge in new sales.

Investors and analysts are understood to be clamouring for answers as to the precise cause of the battery safety issue.

They fear that the damage to Samsung’s brand and future earnings would only deepen the longer the market is kept in the dark.

Despite apologising and recommending owners to stop using their Note7s, the company has given very little insight into the cause of the problem.

Samsung store. Image: With God/Shutterstock

John Kennedy is a journalist who served as editor of Silicon Republic for 17 years