Samsung's Note 7 Nightmare to Hit Profits Into 2017

The proverbial fire that has engulfed Samsung will continue to scorch earnings over the next six months, the South Korean electronics giant warned investors earlier today.

The company's much-publicized Note 7 nightmare looks set to wipe "mid-3 trillion" South Korean won (about $2.65 billion) off operating profits in the final quarter of this year and first quarter of next.

The announcement comes just two days after Samsung Electronics Co. Ltd. (Korea: SEC) issued a profit warning for the third quarter, indicating that sales would be around KRW47 trillion ($41.6 billion) -- about KRW2 trillion ($1.77 billion) lower than previously forecast -- and that operating profit would be about KRW5.2 trillion ($4.6 billion), down from an earlier expectation of KRW7.8 trillion ($6.9 billion).

The company has been forced to discontinue sales of its Galaxy Note 7 devices after a number were reported to have caught fire, including replacements phones issued in the last few weeks. (See Samsung's NoteGate: Winners & Losers.)

The high-profile problem and resulting financial woes have triggered a 9% fall in Samsung's share price this week.

In a statement published on its website earlier today, Samsung said the drop in revenues from discontinued Note 7 sales would continue to put pressure on the bottom line until March next year.

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Samsung expects the impact in the fourth quarter to be in the "mid-2 trillion won range" (about $1.77 billion) and to squeeze operating profits by about KRW1 trillion ($884 million) in the first quarter of 2017.

The manufacturer says it will expand sales of flagship models, including the Galaxy S7 and Galaxy S7 edge, to compensate for the Note 7 discontinuation.

It has also promised to focus on improving product safety for consumers by making "significant changes" to quality assurance processes.

The news may be quietly welcomed by other makers of high-end smartphone devices, and particularly iPhone manufacturer Apple Inc. (Nasdaq: AAPL), which is typically regarded as Samsung's chief rival in the mobile handset business.

iPhone sales have recently dipped but could receive a boost as Note 7 owners scout for less combustible alternatives.

Shares in Apple have edged up this week, closing 2.6% higher on Thursday than at the end of last week.

— Iain Morris, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, News Editor, Light Reading

danielcawrey 10/16/2016 | 4:33:00 PM
Apple Everything I have read seems to indicate this was a rush job by Samsung to beat Apple with a newer model. This should be read as a cautionary tale: Do your best with your products, and don't rush them. 
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