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The death of Galaxy Note 7 leads Samsung to slash Q3 profit forecast by a third to $4.6 billion

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We all are aware of the fact that the Galaxy Note 7 explosion crisis has been a very hard blow for the Korean giant Samsung. But, no one was yet sure how much money was the company losing with all this hubbub surrounding its original and replacement smartphones exploding and causing mass panic. Well, Samsung has today announced its revised third quarter earnings and now we have an approximate figure in hand.

Just last week, Samsung had announced that though the first batch of Note 7 has been a failure but the company was aggressively pushing to replace any and all defected devices. This announcement was followed by a Q3 earning call forecast which surprising showed an uptick in operating profit and revenues even after all the blowing up of devices in the daily.

Samsung had previously said that the losses for the Note 7 explosions and replacements had been compensated by the increase in chip and consumer tech business. But, the consecutive day, numerous replacement ‘safe’ smartphones also started popping and bursting into flames. The company first said that it was ‘adjusting’ production but later confirmed that it is not truly aware of the problem with their devices(same reported by NY Times) and is, thus, completely halting production and sales of the Galaxy Note 7.

And now 24 hours after announcing the demise of its problematic flagship device, the company has announced an update to its Q3 earnings forecast. In the official released statement, Samsung says,

After recent incidents and in consideration of our consumers’ safety, Samsung Electronics stopped sales, exchanges and production of the Galaxy Note 7. Below is a revised pre-earnings guidance which reflects the impact of this decision on the third quarter earnings, in accordance with accounting standards. We are providing the revised guidance based on disclosure regulations of securities market

The company has slashes off its operating profits by a hefty 2.6 trillion won( or $2.3 billion), which is a 33 per cent decrease as compared to previous forecast of 7.8 trillion won. The current profit forecast stands at 5.3 trillion won(or $4.6 billion). These figures not only refer to depleted mobile business profits, but also push results expectations way below analyst estimates.

This, you can say, is the official indication of the losses faced by Samsung due to the unfortunate Note 7 crisis in the past eight weeks. This is also the first time the company has openly put a price tag to the disastrous quarter, which cannot be exactly compensated by sales of any other operating sector. Samsung is now taking precautionary measure to protect its customers and prevent any further damage to its splotchy brand image. It has instructed carriers and retailers to provide users with a full refund(or any other device), and is itself sending out ‘Return Kits’ to recover all defected phones.

However, the question which ultimately remains unanswered is — Has Samsung has completely lost consumer trust in the long run? Will the company be able to revive the Galaxy brand with its upcoming flagship launch of the Galaxy S8? or will it have to resort to other possibilities(new lineup, new name, etc.) to save face and have a decent quarter to end the year?


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