It wasn’t long ago that Samsung was calling the projected $1 billion dollar cost of the first Galaxy Note 7 recall a “heartbreaking amount”. But with Samsung just now announcing it is permanently discontinuing production of the Galaxy Note 7, the company is facing a massive $17 billion dollars in lost sales revenue. The news comes just one day after Samsung put a global stop on sales of the defective device.
Samsung confirmed the official discontinuation of the Galaxy Note 7 line in a filing with South Korean regulators today. In the filing, the company said:
Taking our customer’s safety as our highest priority, we have decided to halt sales and production of the Galaxy Note 7.
Analysts cited by Reuters came up with the $17 billion dollar figure, based on lost sales of the 19 million Galaxy Note 7 units Samsung had originally expected to sell during the device’s lifetime. The figure is a drastic increase from the $5 billion dollars analysts predicted the original recall would cost the company. Samsung is also facing up to $1.6 trillion Won in disposal costs if 4 million-odd Note 7’s need to be safely disposed of.
With the discontinuation of the Note 7 made official, Samsung will lose a full half-year of flagship smartphone sales on top of the disposal and compensation costs associated with the recall. Samsung produces a lot more phones than just flagships, but the profit margin on flagship devices is much more significant than on mid-range and entry-level models.
The true damage to the Galaxy Note brand will only be revealed in time, but as Reuters reports, the decision to scrap the Note 7 entirely was intended “to limit the financial and reputational damage” to the company.
While Samsung as a whole is ultimately large enough to absorb the costs of the Note 7 fiasco, some analysts claim Samsung might have to cut fourth quarter mobile division profit estimates by as much as 85 percent. Samsung Electronics’ market valuation shed $18.8 billion (8%) on Tuesday and that figure is certain to grow even further.
Samsung might have to cut fourth quarter mobile division profit estimates by as much as 85 percent.
If this situation had affected any other smartphone company, it would have likely meant the end of its mobile business. So at the very least Samsung can be grateful it has such a wide-ranging and profitable portfolio that is capable of picking up the slack. Samsung will get back on track, but it will take some time to fully recover.
This situation is developing, we’ll bring you further details as they come to light…
How quickly do you think Samsung will recover? Do you think the Note brand generally is damaged?