Samsung slashed its pre-earnings guidance for the third quarter by $2.3 billion, offering a hint of just how costly the Galaxy Note 7 debacle will be for the company.
The South Korean electronics behemoth said profit is now projected to be $4.63 billion, down from a previous estimate of roughly $7 billion. That would essentially wipe out the entire profit analysts had expected from Samsung’s mobile business, Bloomberg observed.
Samsung said it provided the revised guidance in accordance with disclosure regulations.
The news follows yesterday’s announcement that Samsung had ceased production of the Galaxy Note 7 and asked its partners around the world to stop selling the phone amid ongoing reports of it exploding or catching fire. Samsung also informed South Korean regulators that it would permanently stop making and selling the phone.
The company initially recalled the phone more than a month ago, acknowledging “a battery cell issue” with the high-end handset that resulted in dozens of unspecified problems globally. Samsung recalled 2.5 million phones, but the overheating problems continued with some replacement phones that had been deemed safe, forcing the vendor to kill production entirely.
The Note 7 problems have taken a huge toll on Samsung’s stock over the last several weeks. Shares plunged 10 percent in the last three days, erasing $21 billion in market capital.
Samsung’s nightmare comes at a particularly bad time for the company. The Note 7 was poised to compete at the high end of the market during the crucial holiday season with the iPhone 7, which has enjoyed strong carrier support. Meanwhile, Google is investing heavily to market the Pixel, its own new smartphone for high-end users.
Smaller vendors of Android phones are also likely to take advantage of Samsung’s stumble, Wells Fargo Equity Research analysts wrote this week. “We think other Android vendors with 5.7-inch phones could see a bigger benefit if Android users prefer to stick with Android (just as iPhone users prefer to stick with the Apple ecosystem),” the analysts wrote in a research note. “LG, Kyocera and Microsoft have 5.7-inch phones at U.S. carriers (as well as the older Galaxy Note).”
Regardless of which competitors stand to benefit the most, though, the Note 7 fumble will only grow costlier for world’s largest smartphone vendor. Samsung maintains a deep handset lineup, of course, and sales of the Galaxy S7 are apparently still strong. But the company will now enter the holiday season without a brand-new smartphone targeted at the most lucrative segment of the market. The financial fallout will not be limited to the third quarter for Samsung.
Samsung ceases production of Galaxy Note 7, will discontinue the phone
Samsung suspends Galaxy Note 7 production: report
Samsung could see a second recall of the Galaxy Note 7
Samsung using hazardous materials permit to transport Galaxy Note 7 returns
T-Mobile to resume sales of the Galaxy Note 7 as carrier support for the phone picks up
More than 60% of recalled Note 7 units have been exchanged in U.S. and Korea, Samsung says
Samsung’s Galaxy Note 7 sales were up 25% over last year’s model - prior to recall