After publishing a revised version of its earnings guidance on October 11, Samsung took another look at the numbers and decided things wouldn’t get much better until after March 2017. In the new statement, dated October 14, Samsung says the Note 7 recall is going to cost it approximately another $3.1 billion over the next six months.
That’s in addition to the $2.3 billion it expects to lose in profits when it closes the books on the last three months. Little more than a week ago, Samsung expected operating profits would reach $6.9 billion for the summer period. Now, it’s expecting $4.6 billion, at best. Put together, this is a $5.4 billion loss for Samsung, that it will continue to feel until early 2017.
If that wasn’t upsetting enough for Samsung, its share price has also taken quite a hit since reports of failing Note 7 phones first began to spread. How much? Following the most recent decision to stop sales, exchanges, and to end production, the share price fell 8 percent. Think it doesn’t sound much? Data from Thomson Reuters says it’s equivalent to $18 billion. Add in the $5.4 billion Samsung will miss out on in its earnings, and the Galaxy Note 7 may end up costing $23.4 billion, without taking costs to develop, make, market, then recall and exchange the phone into consideration.
Samsung’s very clear the Galaxy Note 7’s failure, cancelation, and recall is to blame. In its first statement, Samsung says the revised earnings report, which is only a guidance, “reflects the impact of this decision on the third quarter earnings.” In the second statement, it adds these estimates are there to, “inform the market on the impact of the Galaxy Note 7’s discontinuation.”
The first hints about how it’ll deal with recovery are also there. To quickly shift the stigma of exploding Note 7’s, it’s reassuring us there will be “significant changes in the quality assurance processes,” and a greater concentration on safety in the future.
For now, the Galaxy S7 and S7 Edge will be pushed harder than ever, but any long term effects due to reduced confidence may only be evident after the Galaxy S8’s expected launch in 2017.
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