Just a few days into the release of the Samsung Galaxy Note 7, there were numerous reports about the several devices randomly catching fire. After investigating the whole issue, Samsung said that a faulty battery was to blame. Coming in for the rescue, the Korean giant had started recalling all of the handsets it had already sold, offering users to either get their devices replaced or ask for a full refund.
A great move from the tech giant, but very risky, too.
The move will cost Samsung some serious financial damage. When asked about how much the move weighs upon the company, Koh Dong Jin, the head of Samsung’s smartphone business, said at Friday’s press conference in Seoul that it was a “heartbreaking amount.” Bloomberg is giving fresh reports via sources that an estimated total cost of around $1 billion for replacing all 2.5 million devices shipped since launch will be incurred by the Korean giant.
Credit Suisse Group AG, Daishin Securities Co. and Pelham Smithers Associates believe that the recall of the Note 7 may cost Samsung up to $1 billion, which is a massive amount. But it seems like Samsung is ready to take a short-term financial hit rather than a black mark on its reputation.
The Samsung Galaxy S7 was leading the market like a real king last month. And as most would expect, the Korean giant was hoping for the Note 7 to take up the mantle and lead the market in the absence of any new Apple devices. But fate had other plans and now the company is seeing a kind of financial depression.
We don’t yet know how Samsung will bear the costs. But according to most reports, the company’s affiliated battery manufacturer, Samsung SDI, along with Chinese battery maker Amperex Technology Ltd. will share the cost. The former provided 70 percent of the Note 7 batteries and the latter contributed about 30 percent.
Every Note 7 sold by Samsung brings in about $600 of revenue and $108 of operating profit, estimates Credit Suisse. According to analysts led by Keon Han, the company was probably aiming for shipments of 4 to 5 million units in the current quarter and 8 to 9 million in the final three months of 2016.
All this will be hugely affected now.
Also, according to a recent report, most Note 7 owners have opted for a replacement rather than a refund. That might seem like a plus for Samsung, but if more people shifted to another brand (which experts feel could very well be the case), it could be quite literally be….. heartbreaking for the company.