Samsung faces $17 billion loss from Note 7 recall

Analysts predict that Samsung could face a $17 billion loss after it pulled the plug on its flagship Galaxy Note 7.

Photo by: Reuters
Photo by: Reuters

Sales promotion staff stand in front of a Galaxy Note 7 advertisement at a Samsung store in Jakarta, Indonesia, October 11, 2016

Updated Oct 12, 2016

Samsung’s worst-ever recall could cost the company as much as $17 billion after it pulled the plug on its flagship Galaxy Note 7 with the potential to lose more due a dent in the brand and its reputation.

The halt in sales of the smartphone will will translate into lost sales of up to 19 million phones, or nearly $17 billion, a figure that could be easily absorbed by Samsung, with a market value of $235 billion and $69 billion in cash and equivalents at the end of June, but the bigger problem will be long-term impact on its reputation and brand, analysts and experts say.

"We think the Note 7 incident may hurt demand for Samsung's other smartphone models as well," Nomura analysts said in a note, adding it may have to slash Samsung's fourth-quarter mobile division profit estimates by as much as 85 percent.

The firm received 92 reports of batteries overheating in the United States, including 26 reports of burns and 55 reports of property damage, according to the US regulator's announcement of the September 15 recall.

"The Note 7 unit is forever going to be tarnished and the danger is that the brand becomes irretrievably damaged as well," said Stephen Robb, a partner at UK law firm Weightmans.

"They need to be writing to every customer with an apology and some form of 'compensation'... It will clearly be costly for the company but the alternative is to end up going the way of Nokia and Blackberry."

Samsung also faces lawsuits, with at least two consumers taking the company to the court in the United States to claim compensation on damages stemming from the faulty smartphone.

The Note 7 woes may also roil Samsung's component business, an important and growing source of revenue, as it provides key smartphone parts such as phone screens and memory chips.

Samsung announced the recall of 2.5 million Note 7s in early September following numerous reports of the phones catching fire and on Tuesday the crisis deepened.

The company told mobile carriers to stop sales or exchange of the devices and asked users to shut off their phones while it investigated new reports of fires in replacement Note 7s.