Huge Loss
The aftermath of Galaxy Note 7s erupting into flames slashed Samsung Electronics’s operating profit a great deal.
Samsung Electronics rectified its third-quarter operating profit by changing it to 5.2 trillion won (US$4.7 billion) from 7.8 trillion won (US$7.0 billion) on Oct. 12. Its sales slid to 47 trillion won (US$42.3 billion) from 49 trillion won (US$44.1 billion) as well. The shutdown of the Galaxy Note 7 sent operating income down by a whopping 2.6 trillion won (US$2.3 billion) from the figure originally released in the announcement of preliminary corporate earnings on Oct. 7. All possible direct costs incurred by the halt of production of the smartphone were applied to the calculation, Samsung Electronics explained.
People inside and outside Samsung Electronics analyzed that during the announcement of preliminary third-quarter earnings the recall of the Galaxy Note 7 has cost the global smartphone giant 1 to 1.5 trillion won (US$900 million to US$1.35 billion).
Thus, an additional cost of 2.6 trillion won (US$2.3 billion) was applied this time due to the halt of production and the recall cost of more than one trillion won (US$900 million) lowered the originally expected operating income of nine trillion won (US$8.1 billion) to the five trillion won (US$4.5 billion) level. This means that the Galaxy Note 7 fiasco cost Samsung Electronics a total of four trillion won (US$3.6 billion) in operating income.
“We decided to halt the sales and production of the Galaxy Note 7 for customer safety with damage by a fire to the Galaxy Note 7,” Samsung Electronics said with respect to the correction of the public disclosure. “According to accounting standards, we have to apply changes in sales and profit and loss to our third-quarter performance. At the same time, we rectified the public disclosure of the preliminary earnings due to the changes.”
According to third-quarter results corrected on the day, the company’s sales and operating income declined 9.06 percent and 29.63 percent year on year, respectively. Compared to the second quarter, sales and operating income were down 7.73 percent and 36.12 percent, respectively. This marked that Samsung Electronics’ quarterly operating income fell to the five trillion won (US$4.5 billion) level in eight quarters.