Samsung Targets a Big Comeback after Note 7 Disastrous Failure

Samsung Electronics Co LTD vowed to recover from the recent disastrous withdrawal of its Galaxy Note 7 that dragged their earnings to the lowest level in nearly eight years.

The technology giant has released statements about expanding its investigation about Note 7’s exploding battery and assured its investors they would get to the bottom of one of the worst technological failure in history.

Co-Chief Executive J.K. Shin said at a general meeting in Seoul, “We know we must work hard to earn back your trust and we are committed to doing just that.”

Investors voted on Thursday to make Samsung Group’s de facto chief, Jay Y. Lee, as Samsung Electronics director in response to the Note 7 battery failure.

Jay Lee, son of the infamous Lee Kun-hee will now play a bigger role at the group’s flagship company. He also plays a public role in setting strategy.

Chief Executive Kwon Oh-hyun said at the shareholder meeting that they would assign a new role only after the investigation is finished.

Samsung, the world’s top smartphone maker plunged 96% in their third-quarter earnings, a loss of almost 100 billion won ($87.63 million). This is their lowest level since 2008.

The mass pull out of Galaxy Note 7 resulted to -0.1% to -0.2% points from South Korea’s third-quarter GDP growth in quarterly terms, a finance ministry official told Reuters on Tuesday.

The company blames Samsung SDI Co Ltd, who supplied batteries for the first Note 7 recall. The subsidiary reported an 110 billion won operations loss for the third quarter.

Apple Inc, Samsung’s main rival aimed to achieve a fourth-quarter profit close to October-December of 2015, on the back of sales of Galaxy S7 phones and lower-tier models.

“Looking ahead to the fourth quarter, the company expects earnings to improve (from a year earlier) driven by strong performance in the components business,” Samsung said in a statement.

Samsung sees another $3.1 billion hit to profit with the Note 7 withdrawal through the first quarter of 2017.

Software issues may also exist

The company is still investigating what caused the Note 7 fire.  This is because replacements for the initial 2.5 million Note 7’s it recalled was due to fire-prone batteries.
Co-CEO Shin said the battery might not be the only problem. Consequently, they are now looking into software issues to determine the root cause.

Rattled investors now want a concrete plan on how to revive the company’s earnings, repair its major brand, and boost shareholder returns.

LS Asset Management fund manager Kim Sung-soo said, “The key is whether Samsung will be able to remove the uncertainty surrounding the Note 7 and maintain its leading position in the smartphone market.”

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iPhone 7 Shortage to Cause Huge Profit Loss for Apple

A miscalculation for the demand of iPhone 7 Plus this Holiday Season caused Apple to lose a huge amount of profits. Apple Inc. forecasted demand of the particular model fell short this year, unaware of the number of people who intends to buy their iPhone 7 Plus.

According to Mariann Montagne, Apple’s projected value of demands for the holiday quarter fell from 38% to 38.5%, but the actual value is at 39%. Montagne is the senior investment analyst and portfolio manager at Gradient Investments.

The reason for the surge of consumers who wanted to get their hand on the newest, biggest smartphone out in the market is not yet apparent. The company is looking at the customers they gained after the failed launched of Samsung’s Galaxy Note 7. These are the unanticipated numbers of consumers which they had gained over their rival company.

Luca Maestri, Apple Chief Financial Officer said in a Reuters interview that it was “impossible to know” the effect of the Galaxy Note 7 recall.

Earlier in this month, Samsung recalled all of their Galaxy Note 7 handsets because of the battery defects which caused the explosions. Based on the South Korean company investigation, Note 7s are even more vulnerable to catch fire when it is charging. The company ultimately stopped the production their Note 7s.

Holiday shopping spree

Apple’s Chief Executive, Tim Cook said on Tuesday that the company is uncertain if they can mass produce the iPhone 7 Plus. The demand is too high to furnish the remaining order in time for the Christmas shopping rush. Furthermore, Maestri added that “We cannot fulfill all the demand that is out there right now,”

Cook said that the company is overwhelmed by the imminent demand, “particularly on the iPhone 7 Plus versus our forecast going into the product launch”, as the company compares their projected assessment prior to the launch. He also added that the company will just need to manage to the smaller version of the handset model, the iPhone 7.

Disappointed Investors

In the mobile business world, “the bigger phones bring bigger profits” is the magic formula for success.

In the quarterly earnings report on Tuesday, Apple’s investors raised their concern over the company’s miscalculations on the demand. John Jackson, an IDC analyst said, “You’re not able to get that product into the hands of the person who wants it right here, right now. Those are dollars not in your hands.”

On September 7, California-based Company, Cupertino launched its newest iPhones. The iPhone 7 Plus model has a 5.5-inch (14 cm) dual camera on the back, the first kind of its breed. It features a better quality for portrait shots and can be zoomed further away.

Jan Dawson, the analyst for Jackdaw Research said, “It’s inherently tough to know how things like new finishes and features are going to affect demand for a new model”.

According to him, Apple is still learning how the consumer reacts to new features of larger and smaller phones. This was apparent when the company produced only two competitive sizes back in 2014.

Quality over quantity

For analysts, rushing mass production of the unit would be difficult if not nearly impossible. Trip Chowdhry, the managing director of Global Equities Research said that the “company cannot contract new suppliers, hire more workers and open factories overnight”.

He also added, “You can’t just shoot iPhones out of an assembly line at the speed of a bullet”. While pointing out that, “Apple does things to perfection. There is no need to rush and create an inferior product the way Samsung did.”

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Samsung Offers Monetary Incentives to Halt Note 7 Losses

On Thursday, Samsung Electronics offered monetary incentives for customers in South Korea. These are for consumers who trade in their Galaxy Note 7 smartphones for other Samsung Models. The company rushes to shore up its name in the heels of a destructive safety disaster.

The South Korean giant is in damage-control mode as rivals Apple and LG Electronics attempt to steal market share from the global smartphone leader following the scrapping of its latest flagship device.

See Related Article: Samsung Temporarily Halts Note 7 Production

The company is enhancing its marketing and promotional efforts on the other Galaxy-series smartphones to soften the blow from the termination of the premium Note 7. The Note 7 was finally ditched this week after failing to put an end to overheating problems, which caused some of the phones to catch fire.

Samsung started distributing protective gloves and fireproof boxes to customers in the United States returning potentially explosive Note 7s.

In its home market, the smartphone manufacturer began to offer refunds or exchanges for other products. Customers who returned their Note 7s, which cost about $880, were offered a coupon worth 30,000 won ($26.91). Meanwhile, those who opted to swap fir another high-end smartphone will get an additional 70,000 won mobile credit.

Samsung said in a statement that the incentives would compensate consumers for their huge inconvenience.

Following days of heavy losses, Samsung shares had rebounded 2.4 % by 3:55 GMT in a flat broader market.

The firm cut its quarterly profit estimate on Wednesday by $2.3 billion to show the impact of the Note 7 withdrawal. This provides some investors hope that the monetary cost of the fiasco had been largely accounted for.

See Related Article: Q3 Profit Grew Amid Galaxy Note 7 Disaster for Samsung

The real damage is to Samsung’s reputation

However, several analysts acknowledge the real risk to South Korean conglomerate rests in the reputational damage it bears in a cut-throat industry.

The Note 7 letdown could challenge economic growth, South Korea’s central bank said. However, the institution said it needed more time to consider the effects.

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Samsung reach end of Galaxy: Note 7 recall could cost $19bn

Samsung today axed its flagship Galaxy Note 7 smartphone after being unable to stop its faulty batteries catching fire and exploding.

When reports came in from all over the world of the phones catching fire the South Korean tech giant initially announced a recall of the devices.

Then when it emerged that customers reported that their supposedly ‘safe’ replacements were also catching fire it seemed there were few options left for Samsung.

Safety

The tech company announced that it would permanently stop production of the Galaxy Note 7 for the sake of consumer safety.

Yesterday it announced that it was “adjusting production” of the troubled devices but it said today in a statement:

“Putting consumer safety as the top priority, we have reached a final decision to halt production of Galaxy Note 7s.”

Existing Note 7 customers were warned to immediately “power down and stop using the device”  and were told they could apply for a full refund or swap the phone for other Samsung products.

Experts estimate that today’s decision could cost $17bn in lost sales plus up to $2.2bn in customer refunds.

Greg Roh from HMC Investment Securities said this was a huge blow for Samsung.

Damage

He said: “If it’s once, it could be taken as a mistake but for Samsung, the same thing happened twice with the same model so there’s going to be a considerable loss of consumer faith.

“The reason consumers prefer brands like Samsung and Apple is because of product reliability … so in this case brand damage is inevitable and it will be costly for Samsung to turn that around.”

Analysts believe that disillusioned Samsung customers are more likely to switch to rival Android manufacturers rather than migrate in large numbers to Apple.

At first it all went well for the Note 7 with widespread praise for its curved screen, super-fast charging, waterproofing and high-end cameras.

That was until reports started coming in of the devices smouldering, catching fire and even exploding which first led to a  “voluntary replacement programme” which was soon ramped up to an official recall.

Exploding

Samsung may have recovered at that point but when the replacement phones also began to develop similar faults, the writing was on the wall.

South Korea’s safety agency is still investigating why the replacement phones have been exploding, and an official said the replacement phones may have a different defect to the problem with the original Note 7s.

If so then that is a double blow of bad luck for Samsung’s latest flagship smartphone.

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Samsung Temporarily Halts Note 7 Production

South Korea’s Yonhap news agency reported Monday that Samsung Electronics has temporarily stopped production of its Galaxy Note 7 smartphones. The company suspended production following reports of overheating of the replacements for the fire-prone phones.

Yonhap said Samsung took the exceptional measure for the sake of consumer safety, quoting an unnamed official at one of the electronic giant’s supplier.

The effort follows pronouncements by US carriers T-Mobile and AT&T to halt the distribution of new Note 7 smartphones to customers to exchange erstwhile models while replacement devices are being investigated.

Samsung did not respond to requests for confirmation on the news agency’s report.

The Note 7 recall is Samsung’s biggest crisis in years and is the company’s first and only smartphone recall to date.

Samsung pronounced on September 2 a global recall of 2.5 million Note 7s because of the phones catching fire due to defective batteries. However, similar problems occurred when a replacement Note 7 began smoking inside a Southwest Airline flight in the US on October 5.

The device was a Galaxy Note 7 picked up by passenger Bryan Green from an accredited AT&T store on September 21 as a replacement for his old Note 7 that he returned when the global recall was announced.

Airport officials and major airlines advised passengers not to use the phone on board.

Singapore Airlines banned the charging and powering up of Note 7 phones on all its flights.

Hong Kong International Airport also strongly advised passengers not to put the phones in checked baggage and to stop using or charging Note 7s on aircraft.

AT&T Inc announced that it would discontinue dispensing replacement Note 7s as Mobile carriers also took action on Monday. It would instead let customers with a recalled Note 7 swap their device for another Samsung smartphone model or any other smartphone of their choice.

Replacement and sales of Note 7 discontinued

While Samsung is investigating “multiple reports of issues” with its top-of-the-line device, T-Mobile US Inc said it was temporarily suspending replacement and sales of new Note 7s.

In addition, the no. 3 wireless carrier offered their customers who brought in their Note 7s a $25 credit on their phone bill.

Meanwhile, Telstra Corp, Australia’s largest carrier, said that Samsung had halted the supply of new Note7s, while fellow Australian carriers Vodafone and Optus acknowledged that they had stopped distributing new Note 7s.

Samsung said it was investigating reports of “heat damage issues” and would act immediately to remedy any problems in accordance with measures accepted by the US Consumer Product Safety Commission.

The Consumer Product Safety Commission had no further information on Friday as it is still investigating the incident.

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Q3 Profit Grew Amid Galaxy Note 7 Disaster for Samsung

Samsung Electronics is exceeding company estimates for the third quarter of 2016. The report shows that in spite of the problem riddled Galaxy Note 7, the profit margin seems to be heading up. Samsung said that their operating profit of about $7 billion. Sales approximate puts in at around $44 billion. This year’s increase is approximately 3.6 million higher than that of the same period in 2015.

Though the figure is strong and that it is breaking most analyst estimates specially with the Note 7 spectacle, Samsung is seeing the effects of the Note 7 recall. Total sales from July to September have declined specially on the Note 7 smartphones. This period was the time that the issues on the Note 7 was at its peak with their exploding battery. The numbers however are still showing a year-on-year increase for their 2 year records. Samsung however could have pulled up a stronger hold this year if not for the Note 7 snags.  “Samsung was originally expected to perform better and better this year,” said Chung Chang Won of Nomura Holdings.

Samsung’s Semiconductor sector has sustained their profit and made up for the cost from the issues with their mobile division. IBK Securities analyst, Lee Seung-woo said that though the recall had “taken its toll” on the mobile division, Samsung’s “other businesses, particularly semiconductors, have fared extraordinarily well.”

Semiconductors on the Rise

Semiconductor prices on record show a steady increase during the 2^nd and into the 3^rd quarter.

Chung said, “If its mobile unit doesn’t get into further trouble from here and given the strong performance of its components businesses, Samsung shares will continue its upward march.”

However, it seems that Samsung’s woes with the Note 7 is not yet over. A Note 7 caught fire on a Southwest Airlines plane before takeoff. US Regulators launched a new wave of investigation into the new Note 7 incident. The Owner said that the phone they have is already the replacement units for the recall.

See Related Article: Samsung Note 7 Replacement Catches Fire on Plane

 

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Samsung Note 7 Replacement Catches Fire on Plane

Southwest Airlines evacuated their passengers before takeoff on Wednesday. The flight is from Louisville, Kentucky, to Baltimore, Maryland. A Samsung Note 7, considered safe by the South Korean company, caught fire and caused the emergency.

Fortunately, the airline company was keen on their protocols. Spokesperson of Southwest Airlines told BBC, “A customer reported smoke emitting from an electronic device. All customers and crew deplaned safely via the main cabin door.”

Earlier on September, Samsung Electronics imposed mandatory recalls for the Note 7 to resolve battery issues. Apparently, the handsets are vulnerable to overheating.

Samsung is still looking on the cause of the fire. A spokesman from the company said, “We are working with the authorities and Southwest now to recover the device and confirm the cause. Once we have examined the device we will have more information to share”.

Brian Green, the owner of the phone confirmed he bought the Note 7 on September 21. He said on the phone interview with Jordan Golson from The Verge.

Samsung distinguishes their newly released Note 7 with a black square icon outside the device’s packaging. Green purchased one of these handsets which Samsung deemed to be safe for the consumers.

The company guaranteed their consumers on the safety of the products when they recalled the handsets. Now, post -replacement, Samsung’s safety officials said the devices are safe from the overheating issues. However, they were still receiving reports about the issue.

According to Samsung’s spokesperson, “There have been a few reports about the battery charging levels and we would like to reassure everyone that the issue does not pose a safety concern,”

Turned-off and not charging

According to The Verge, Green’s Note 7 was turned off and not even charging when it overheated in his pocket. He then tossed the device to the plane’s floor where it started to emit thick grey-green angry smoke.”

The US Federal Aviation Administration (FAA) issued flight guidelines regarding Note 7. FAA warning indicates that all Note 7 should be turned-off for the duration of the flight. They also advised the public against placing it into check in luggage.

FAA has not given any statements if they will release additional guidelines on the latest incident.

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Samsung: Will The Brand Still Be Viable?

Galaxy Note 7s are back on the shelves. Samsung will resume selling Galaxy Note 7 smartphones to consumers in South Korea after the product recall. The company is bound to sell Note 7 in Europe come October 28.

Samsung asked their customers to return the Note 7 after reports of batteries igniting during or after charging. The company said it was due to faulty batteries.

Overall, Samsung sold about 2.5 million Galaxy Note 7 handsets worldwide before recalling the product. A total of 80% handsets sold in Korea had been replaced or returned.

Similarly, in Europe and North America, the figure is lower but still not less than 50%, according to Samsung.

A company source said 95% of the customers returning their handsets still choses to continue with Samsung. One big factor to it is customer loyalty.

Incalculable losses

But the cost must be huge. So massive that to quantify it in monetary terms simply cannot be done. Partly because Samsung’s efforts and carefully planned sales pitch was now futile against its rival. The “disaster” granted the iPhone 7 a month’s head start.

On top of that, Samsung promises its customers quality products. It pitches itself on producing most of its components, hence the company does less outsourcing than their competitors. With the product recall, even the branding of their own as quality products might sound dodgy to customers.

Furthermore, the company replaced most of the affected units but a vast number of handsets are still out.

Finally, Samsung Note 7 and airlines do not go hand-in-hand these days. Airlines recently released a warning for passengers with Note 7. The handsets cannot be checked in. They should remain “off” for the flights entirety.

 

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