Samsung vows to rise from Note 7 ashes as Q3 earnings plunge 98%

A shareholder uses his Samsung Electronics Co. galaxy smartphone during the company's extraordinary general meeting of shareholders at the Seocho office building in Seoul, South Korea, on Thursday, Oct. 27, 2016. REUTERS/SeongJoon Cho/Pool

SEOUL (Reuters) – Samsung Electronics on Thursday said it aims to recover quickly from the disastrous withdrawal of the fire-prone Galaxy Note 7 that dragged third-quarter mobile earnings to their lowest in nearly eight years.

The world’s top smartphone maker saw its mobile earnings plunge 98% from a year earlier to its lowest since the fourth quarter of 2008, barely avoiding its first-ever loss and dragging the firm’s overall profit to a two-year low.

Samsung said July-September operating profit was 5.2 trillion won ($4.57 billion), matching its revised guidance. The South Korean firm had initially estimated a 7.8 trillion won profit but cut its guidance to reflect losses incurred in the withdrawal of the fire-prone Note 7s.

“Looking ahead to the fourth quarter, the company expects earnings to improve (from a year earlier) driven by strong performance in the components business,” Samsung said in a statement.

“The mobile business expects a recovery in its earnings to a similar level with that of the fourth quarter of 2015.”

The mobile division booked an operating profit of 100 billion won in the third quarter.

Earnings from smartphones and tablets have been the main driver of Samsung’s rise into a global tech giant, accounting for 38% of total income last year.

Samsung said it aims to bolster fourth-quarter earnings through its Galaxy S7 phones and new lower-tier models in a bid to record profit close to the 2.23 trillion won it reported in October-December of 2015.

“I am not positive about Samsung’s mobile business until the first quarter, although the components division will remain solid,” SK Securities analyst Kim Young-woo said.

The Apple rival has already warned of another $3.1 billion hit to profit through the first quarter of 2017, all but guaranteeing a third straight year of earnings decline for the smartphone business.

Investors now expect sweeping management changes and restructuring in response to the Note 7 failure, while warily watching for signs of long-term impacts on the sales of other Samsung brands.

Samsung shares were up 0.5% in early trade after the results announcement, compared with a 0.4% gain for the broader market.

Frustrations abound

Many are frustrated that Samsung still does not know what caused the fires in some of the Note 7 devices that were sent to customers as replacements for the initial 2.5 million phones it recalled due to fire-prone batteries.

The company gave no further insights in its earnings announcement.

Development of the next Galaxy S smartphone – expected to launch in March 2017 – has slowed as Samsung works to make sure there will be no repeat of the over-heating problem, a person familiar with the matter told Reuters.

The launch is unlikely to be brought forward to make up for Note 7 sales, the source said, contrary to some investors’ belief that the new Galaxy S will be fast-tracked.

Stronger earnings from the company’s components businesses was a bright spot in the third-quarter results. The semiconductor division reported a 3.37 trillion won profit for July-September, its highest since the third quarter of 2015.

(Reporting by Se Young Lee; Additional reporting by Hyunjoo Jin; Editing by Stephen Coates)



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