Samsung gives latest cost estimates for Note 7 disaster

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By Euronews
Samsung gives latest cost estimates for Note 7 disaster

Samsung is putting out more big scary numbers linked to the scrapping of its fire-plagued Galaxy Note 7 smartphone.

The sales impact on other models remains unclear

Kim Sung-soo Fund manager, LS Asset Management

It now expects to take a hit to its operating profit which is the equivalent of about 2.7 billion euros over the next two quarters.

That brings the total losses forecast so far to 4.8 billion euros.

To make up for the lost revenue, Samsung plans to expand sales of other handsets such as the Galaxy S7 and S7 edge phones.

It is also promising to make “significant changes” in its quality assurance processes to improve product safety.

Reputation harm

Reputational damage remained the great unknown and potentially more harmful than recall costs, with rivals in the cut-throat industry eager to pounce on any sign of weakness in the market leader’s standing among consumers.

“The sales impact on other models remains unclear,” said Kim Sung-soo, a fund manager at LS Asset Management, which owns Samsung Electronics shares.

“The end of the premium model will damage Samsung’s brand, and hurt demand for its other models. It is difficult to measure such impact.”

Cause of the overheating is key

Vital to Samsung’s brand recovery would be rapidly finding out and communicating what went wrong with the Note 7, which was recalled when some devices were found to be combustible and finally discontinued when customers reported similar faults in their replacements.

The company blamed faulty batteries for the original problem but it has not said what caused overheating in the replacements.

“Samsung must announce clearly what the reason was and dispel uncertainty,” said Park Jung-hoon, a fund manager at HDC Asset Management which owns shares in Samsung affiliates.

“What’s important is whether the flagship S7 can fill the gap left by the Note 7, and how much trust Samsung can regain from consumers by the time the S8 comes out,” he said. Analysts expect the S8 to be released in the first quarter.

Investors were also expecting the company to show its “commitment to shareholders” by announcing share buybacks or higher dividends, he added.

Samsung’s shares, which have fallen about 8 percent during the week, edged up 0.6 percent on Friday.