Samsung Profit Continue to Slides on Galaxy Note 7 Recall

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Operating profit of Samsung took a massive tumble in the third quarter, impacted by the recent recall of the company’s latest Galaxy Note 7 due to fire concerns.

The South Korean tech giant said on Thursday that operating profit for the third quarter was 5.2 trillion won (about $4.5 billion), which was the lowest seen in two years.

Pre-tax profit was 5.97 trillion won, down more than 19 percent from the level in the same period a year earlier. Samsung’s net profit declined to 4.54 trillion, a fall of nearly 17 percent.

The slump in profits was attributed to a massive plunge in the company’s mobile device business, which was greatly impacted by the unfortunate recall of the Galaxy Note 7.

The latest high-end smartphone was recalled, with production halted, after reports emerged that the units were catching fire. Samsung has yet to fully explain what was responsible for the fire incidents, saying it was still investigating the cause of the overheating.

The Note 7 fiasco caused a 96 percent on-year decline in the operating profit of the IT and mobile communication business of Samsung, standing at 100 billion won during the quarter. The profits of the world’s largest smartphone maker would have been impacted more had it not been for improvement recorded in its components business.

Samsung said high-end product sales by its components business rose during the third quarter. A regulatory filing showed operating profit from sales of semiconductors boosted to 3.37 trillion won, while that from sales of display panels, including the high-end OLED panels, was 1.02 trillion.

Co-Chief Executive Officer issued an apology for the Galaxy Note 7 misfortune during a shareholders’ meeting in Seoul, according to Reuters.

The Note 7 was expected to go head-to-head with Apple’s latest iPhone 7 before it was recalled and production halted.

Samsung reportedly tried to replace the smartphones with upgraded devices, but that attempt was abandoned after new reports of overheating. The entire experience was considered a big dent to Samsung’s reputation, with analysts saying it had lost consumer confidence.

“It’s painful – the Note 7 should potentially have sold 15 to 17 million units and that’s gone,” ABI Research’s Jake Saunders told the BBC. “That’s now suddenly an opportunity for other smartphone makers to jump in.”

Samsung said its mobile phone business would shift focus to growing sales of flagships, while also working to regain consumer confidence.

The South Korean phone maker has expressed expectation of increased smartphone and tablet sales during the current quarter. It expects the mobile device business to report around 2.23 trillion won in operating profit, similar to the same period a year ago.

It is expected to launch its next flagship smartphone, the Galaxy S8, in the first quarter of 2017. The device may help the company put the Note 7 fiasco behind it.

Meanwhile, the appointment of Lee Jae-yong as the company’s vice chairman has been approved by shareholders. The 48-year-old is the son of Samsung Chairman Lee Kun-hee and grandson of company founder Lee Byung-chul.

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