Galaxy Note 7 Recall Sinks Samsung Profit
October 26 2016 - 9:50PM
Dow Jones News
SEOUL—Samsung Electronics Co. said its net profit fell 16.8% to
4.54 trillion Korean won ($4.0 billion) in the third quarter, as a
disastrous recall of its premium Galaxy Note 7 smartphone caused
the company's mobile division to report its smallest quarterly
profit since it launched its first Galaxy series phone more than
six years ago.
Samsung's mobile operating profit tumbled 96% from a year
earlier to 100 billion won after the discontinuation of the Galaxy
Note 7, which went on sale Aug. 19. Dozens of reports of
overheating forced the company to first recall the phone on Sept. 2
and then—on Oct. 11—to abandon it altogether.
Overall operating profit for the three months ended Sept. 30
fell 30% to 5.2 trillion won from nearly 7.4 trillion won a year
earlier, while revenue fell 7.5% to 47.82 trillion won.
The company said earlier this month that it expects to take an
additional hit of about 3.5 trillion won from the Galaxy Note 7
fiasco in the last three months of 2016 and the first three months
of next year.
Samsung's earnings damage would have been much worse if it
weren't for the relative stability of sales of semiconductors and
display panels. The semiconductor division earned 3.37 trillion
won, a decline of 7.9% from a year earlier, while display panels
brought in 1.02 trillion won, up 9.7%.
As a result, semiconductors and display panels accounted for 84%
of Samsung's overall operating profit—the highest level in
years.
Samsung's Galaxy Note 7 fiasco comes as longtime rival Apple
Inc. is also struggling to maintain demand for its iPhones. On
Tuesday, the Cupertino, Calif.-based smartphone maker reported its
first annual revenue decline in 15 years, and offered an outlook
for the holiday quarter that disappointed investors.
When Samsung first launched the Galaxy Note 7, it was greeted by
positive reviews and strong preorders. Analysts increased their
profit expectations for the company and on the day before the
Galaxy Note 7 went on sale, Samsung shares jumped to their first
fresh record high in three years.
But reports of the phone catching fire led Samsung to issue a
global recall of 2.5 million devices. It rushed out millions of
supposedly-safe replacement smartphones before being forced to
recall those devices as well. Samsung says it has yet to identify
the source of the problem, raising concerns about whether the
company will be able to avoid the same pitfalls when it launches
its next flagship smartphone, which is expected to be introduced
next February as the Galaxy S8.
As a result of the Galaxy Note 7 woes, Samsung's mobile
operating margins, which had risen to more than 16% in the previous
quarter, plummeted to nearly zero.
Partly in response to the company's shifting fortunes, Samsung
said Thursday that it would spend more than 27 trillion won in
capital expenditures this year, doubling down on components like
3-D NAND flash memory and organic light-emitting diode, or OLED,
displays, to drive profit.
Separately, Samsung shareholders are set to vote Thursday
morning on the appointment of Samsung heir apparent Lee Jae-yong to
the board of directors, his first official board seat.
The company's cash pile also continued to grow, reaching a
record high of about 83 trillion at the end of September.
Samsung shares edged up 0.5% in early trading Thursday in
Seoul.
Corrections & Amplifications: Samsung's profit for its
mobile division in the third quarter was 100 billion won. An
earlier version of this article incorrectly said it was 0.1 billion
won.
Write to Jonathan Cheng at jonathan.cheng@wsj.com and Eun-Young
Jeong at Eun-Young.Jeong@wsj.com
(END) Dow Jones Newswires
October 26, 2016 21:35 ET (01:35 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
Apple (NASDAQ:AAPL)
Historical Stock Chart
From Aug 2024 to Sep 2024
Apple (NASDAQ:AAPL)
Historical Stock Chart
From Sep 2023 to Sep 2024