​Note 7 recall looms over Samsung third quarter

The analyst consensus for Samsung's third quarter operating profits has fallen, with the firm facing a drop of up to 8 percent from its two-year-high previous quarter after the Note 7 recall.
Written by Cho Mu-Hyun, Contributing Writer

Samsung Electronics will see profits of 7.4 trillion won ($6.7 billion) for the third quarter of the year, according to analyst consensus in South Korea, a drop of 8.6 percent from the previous quarter.

The adjusted analyst consensus follows the recall of the Note 7 on September 2 due to battery explosions.

Dongbu Securities downgraded its estimate from 8.2 trillion won to 7 trillion won; Shinhan lowered it from 8.39 trillion won to 7 trillion won; Korea from 8.28 trillion won to 7.14 trillion won; and Hanwha from 8.5 trillion won to 7.7 trillion won. KTB Investment & Securities downgraded to as low as 6.9 trillion won.

All agreed that the cost of the recall itself will be over $1 billion.

Kwon Sung-ryul of Donbu said the mobile division's operating profits will fall to 2.6 trillion won from his initial estimate of 4.1 trillion won due to the recall cost and problems in production and sales.

Shinhan's So Hyun-chul said the cost of the recall will reach 1.5 trillion won.

Not all analysts here have readjusted their estimate so the consensus will likely fall further.

However, citing customer loyalty and overall high quality of the Note 7s, many believe Samsung will return to form in the fourth quarter of the year.

In August, when the Note 7 was first unveiled to generally positive reviews, analysts expected operating profits of over 8 trillion won. This would've been near level with the previous quarter's 8.14 trillion won ($7.23 billion), Samsung's highest in two years due to the Galaxy S7 and S7 Edge.

Samsung recalled the phones on September 9 and has not resumed official sales, effectively not selling any new handsets for a month. Sales in South Korea will resume on September 28.

The recall itself has been troublesome for the South Korean tech giant. It said it received "26 false reports" of the phones catching fire since the recall.

It has also been a boon to rival Apple, with analysts expecting Cupertino to sell more than 100 million of the iPhone 7 by the end of the year thanks to the recall.

Correction 2:32pm AEST September 26, 2016: Conversion to US$6.7 billion.

Editorial standards