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 Samsung’s latest estimate “doesn’t 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 world’s 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.
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”.
The company blamed faulty batteries made by an unnamed supplier, widely believed to be its sister company Samsung SDI. But experts believe the problem was caused by the handset’s underlying technology, and Samsung’s decision to rush it out before the latest iPhone launch.
The US recall and replacement programme for the Note 7 has begun after an agreement was reached with the Consumer Product Safety Commission (CPSC), increasing the number of devices that could be returned to 1.9m.
Samsung claims only 96 handsets have been found to have caused damage or injury owing to the faulty battery problem. Of those, 13 have caused injuries and burns to people, and 47 have damaged property. There have also been accounts of the smartphones smouldering and smoking during flights, including one in India and one in the US.
All US Note 7 owners can exchange their devices for another Samsung smartphone or receive a refund under the plan approved by the CPSC, the company and agency said on Thursday. Customers who exchange the Note 7 for a Samsung device will receive a $100 credit; those opting for an alternative brand will receive $25 credit.
The Note 7 was due to relaunch in the UK, costing £740 ($907), at the end of October. Many customers have already bought them through a pre-order campaign. Samsung said 45,000 Note 7s had been sold in Europe, the majority in the UK.
guardian.co.uk © Guardian News and Media Limited 2010
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