Samsung Slashes Q3 Profit Forecast By A Third After Galaxy Note 7 Goes Down In Flames
The Galaxy Note 7 launch has been nothing short of a disaster for Samsung, and now that it's pulled the plug on production of the troubled device, it has to shift focus to whatever the next big thing is. In the meantime, Samsung cut its fiscal third-quarter profit forecast—it now expects to record an operating profit of 5.2 trillion Korean won (around $4.6 billion in U.S. currency), down from a previous estimate of 7.8 trillion won.
Samsung's previous forecast took into consideration its global recall of Galaxy Note 7 devices. However, it didn't anticipate that replacement handsets would also be prone to overheating and catching fire, or that it would eventually throw in the towel and count the Galaxy Note 7 as a lost cause. Instead, Samsung identified the battery as being the issue and thought things were under control when it equipped replacement handsets with a different battery pack.
Unfortunately for Samsung, reports of overheating devices didn't stop coming in. In one instance, a Southwest Airlines plane that hadn't yet taken off had to be evacuated with a man's replacement Galaxy Note 7 began billowing smoke. Meanwhile, a man in Kentucky was taken to the emergency to be treated for smoke inhalation that also originated from a replacement handset that was thought to be immune for overheating.
There's no saving the Galaxy Note 7 at this point and Samsung's revised forecast takes that harsh reality into account.
"The expected direct cost of the discontinuation of the Galaxy Note 7 has been reflected," a company spokeswoman told The Wall Street Journal.
Lucky for Samsung, it has other businesses that are doing well, particularly its semiconductor and display divisions. While mobile is an important part of Samsung's bottom line, it doesn't rely as heavily on smartphones as Apple does with its iPhone, which should help company weather the storm. The question is, what comes next?
Samsung has to decide if it will release another Galaxy Note device in the future. It also will have to make a decision on the Galaxy brand as a whole.
Samsung's previous forecast took into consideration its global recall of Galaxy Note 7 devices. However, it didn't anticipate that replacement handsets would also be prone to overheating and catching fire, or that it would eventually throw in the towel and count the Galaxy Note 7 as a lost cause. Instead, Samsung identified the battery as being the issue and thought things were under control when it equipped replacement handsets with a different battery pack.
Unfortunately for Samsung, reports of overheating devices didn't stop coming in. In one instance, a Southwest Airlines plane that hadn't yet taken off had to be evacuated with a man's replacement Galaxy Note 7 began billowing smoke. Meanwhile, a man in Kentucky was taken to the emergency to be treated for smoke inhalation that also originated from a replacement handset that was thought to be immune for overheating.
There's no saving the Galaxy Note 7 at this point and Samsung's revised forecast takes that harsh reality into account.
"The expected direct cost of the discontinuation of the Galaxy Note 7 has been reflected," a company spokeswoman told The Wall Street Journal.
Lucky for Samsung, it has other businesses that are doing well, particularly its semiconductor and display divisions. While mobile is an important part of Samsung's bottom line, it doesn't rely as heavily on smartphones as Apple does with its iPhone, which should help company weather the storm. The question is, what comes next?
Samsung has to decide if it will release another Galaxy Note device in the future. It also will have to make a decision on the Galaxy brand as a whole.
