Samsung’s smartphone profits collapse after Galaxy Note7 recall

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The world’s largest smartphone maker, Samsung Electronics Co. Ltd., saw its revenues and profits tank in the last quarter.

Not surprisingly, the consumer electronics giant blamed the losses on plunging sales that resulted from its recall of the high-end Galaxy Note7. Samsung said in its third-quarter earnings report Wednesday that its IT and Mobile Communications division barely broke even during the third quarter, with sales down by 15 percent compared with the same period one year ago, to 22.5 trillion Korean won ($19.8 billion). Meanwhile, the unit’s profits collapsed by 95 percent to just 100 billion won ($87.8 million).

The South Korean firm’s woes began shortly after its flagship Galaxy Note 7 smartphone went on sale in late August. Within days, the company began receiving reports that some units were overheating and catching fire, leading to an unprecedented and extremely costly recall and replacement program in early September. However, when it emerged that some replacement units were experiencing the same problems, Samsung had no alternative but to pull the plug on the phone entirely.

Despite this calamity, Samsung said that sales of its other two high-end handsets, the Galaxy S7 and S7 Edge, were not affected. However, executives admitted during the call that its key objective in the months to come would be “regaining consumer confidence” in its products.

Samsung officials were bullish about the company’s immediate prospects. They insisted that smartphone division sales would soon rebound back to normal levels, pointing to encouraging sales of its other two high-end sales, and rising sales of mid-level handsets such as the Galaxy A and Galaxy J series. Even so, officials admitted that costs associated with the Note7 recall would continue to impact the company for the next three to six months, causing one analyst to voice concerns over its smartphone unit’s prospects for the rest of the year.

“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 told the Reuters news agency.

Still, Samsung chiefs said they were optimistic the company would ride out the storm by early next year. “As for 2017, the company anticipates a turnaround with the launch of new flagship smartphones,” the company said. “Next year will also see expansion of Samsung Pay rollouts and cloud-related services as well as the introduction of artificial intelligence related offerings.”

Across the entire company, Samsung saw revenues fall 7 percent year-over-year to 47.8 trillion won ($41.9 billion), while net profits fell 17 percent to 5.2 trillion won ($4.5 billion). Samsung shares were up a half-percent in early trading after the results were announced, compared with a 0.4 percent gain for the broader market, Reuters said.

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