Galaxy Note 7: Samsung Electronics Co Ltd Mobile Division Profits Tumble 96%

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When Samsung rushed the launch of the Galaxy Note 7, it thought the flagship phablet had everything needed to gain ground against Apple’s iPhone 7 and 7 Plus. But the device ended up costing Samsung billions of dollars, besides giving the iPhone 7 sales a big boost. Samsung has released its fiscal third-quarter results, and the mobile division profits were at the lowest level in nearly eight years.

Samsung’s mobile unit earned just $87.5 million in Q3

The Korean company’s mobile division operating profits plunged 96% YoY to just 100 billion won ($87.5 million) from $2.1 billion in the same quarter a year ago. Samsung hoped that the mobile communications profits would return to last year’s levels in the next quarter. The world’s largest smartphone maker had previously estimated that the Galaxy Note 7 debacle would cost as much as $3 billion.

It may take several quarters to fully assess the damage caused by the Note 7. The Note 7 production and sales were discontinued after two recalls. The company issued a worldwide recall in September after a battery flaw caused the device to catch fire and explode, damaging properties and causing serious injuries to owners. There have been hundreds of such cases worldwide.

Component business help Samsung weather the Galaxy Note 7 recall

Despite a major setback from the Galaxy Note 7, Samsung still managed to earn an operating profit of 5.2 trillion won ($4.5 billion), which is 30% lower than profits in the same quarter a year ago. It’s a solid reminder that Samsung has a thriving component and electronics business. The component businesses, especially the chips and OLED display operations, showed strong growth during the July-September quarter.

The component businesses contributed as much as 80% to Samsung profits during the latest quarter, helping the company weather the Galaxy Note 7 disaster. Total revenues declined 7.5% to 47.8 trillion won ($41.9 billion). Analysts expect the component businesses to be Samsung’s growth engine over the next year as more and more premium smartphone vendors adopt its OLED screens.

JK Shin apologizes to customers and shareholders

Samsung President JK Shin told investors that there had been more than 300 cases of Galaxy Note 7 explosions, most of which were caused by the battery. He said during the company’s shareholder meeting that the company was working with third-party experts and regulators to diagnose the issues that led some handsets to catch fire. Samsung is yet to figure out what caused the phones to burst into flames.

JK Shin also apologized to consumers and shareholders, saying that the company failing to meet its own quality standards was “not acceptable.” Samsung engineers are carefully revisiting every aspect of the Note 7 that could have caused the incident. Samsung said it would invest about 27 trillion won ($23.7 billion) this year to ramp up production of OLED displays and advanced chips.

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