Samsung Electronics Co Ltd needs to quickly find the cause of the fires that led to it pulling its Galaxy Note 7 smartphones and get a new model to market, investors said on Wednesday, as shares in the company slipped to a one-month low.
Samsung cut its third-quarter operating profit guidance on Wednesday to 5.2 trillion won ($4.66 billion/€4.21 billion) from 7.8 trillion won due to the impact of pulling the smartphone off the market.
The world’s top smartphone maker on Tuesday scrapped the $882 (€798) flagship smartphone in what could be one of the costliest product safety failures in tech history.
Samsung announced the recall of 2.5 million Note 7s in early September following reports of the phones catching fire. The firm appeared to have the situation under control as it issued replacement devices with different batteries, until the new phones also began to smoke and combust.
Investors and analysts agreed that the damage to Samsung’s brand and future earnings would deepen the longer the market was left in the dark about the origin of the fault, with some already predicting lost revenue in the region of $17 billion (€15.39 billion).
“It’s good that Samsung made a firm decision on the Note 7, but people are concerned about the situation because people don’t know what the problem is,” said Kim Hyun-su, a fund manager at IBK Asset Management, which owns shares in Samsung.
Explanation needed
“There needs to be explanation from Samsung in order for consumers to understand that problems won’t occur in the next models . . . Samsung needs to clearly explain and admit what went wrong.”
Samsung would likely push ahead to get the latest version of its premium S-series smartphones to market as soon as possible, fund managers said. Typically, the South Korean company unveils a new Galaxy S phone on the sidelines of the Mobile World Congress trade show in the first quarter as it battles Apple Inc to stay at the top of the smartphone market.
“We’ll have to see what the future plans are but I suspect Samsung will move quickly to get the Galaxy S8 ready; they have the manufacturing and production capabilities,” Mr Kim said.
Experts baffled
Experts are baffled by what could be causing the overheating in the replacement phones, if not the batteries, and Samsung has not commented.
An official at the Korean Agency for Technology and Standards, which is investigating the problem alongside Samsung, said the fault in the replacement devices might not be the same as the problem in the original product. The official asked not to be identified as he was not authorised to speak publicly.
Aviation authorities and airlines around the world are telling passengers to switch off their Note 7s and keep them out of checked baggage, amid fears they could bring down a plane.
Samsung shares were down 1.6 per cent as of 4.36am Irish time after touching a one-month low of 1.494 million won (€1,213), reflecting concerns about fourth-quarter earnings as well as the potential long-term impact on its smartphone business.
The stock is down 11 per cent so far this week, on track for worst weekly per centage fall since December 2008.
“Damage control at Samsung will face an uphill battle to redeem the company’s tarnished image owing to the dangerous and dramatic nature of the phone’s failure,” Vijay Michalik, an analyst at research firm Frost & Sullivan, said.
Opportunity for other Android manufacturers
A permanent end to Note 7 sales could cost Samsung up to $17 billion, according to calculations based on analysts’ projected sales of the phone.
While the damage to Samsung’s brand remains hard to quantify, negative publicity from the botched recall could touch off a turf war among Android smartphone manufacturers, analysts said.
Consumers tend to commit to their choice between Apple’s iOS operating system and Google’s Android, leaving Samsung’s fellow Android manufacturers such as LG Electronics Inc and Alphabet Inc’s Google in prime position to strike.
Agencies
