The Korean tech giant may face turbulent days ahead as it recalls 2.5 million units already shipped globally.
The unprecedented recall of Samsung’s latest flagship, the Galaxy Note 7, has raised a fair amount of turbulence worldwide. A deadly anomaly by nature that could have potentially affected millions, a flaw in the Note 7’s battery resulted in the positive and negative anodes coming together, leading the device to explode. The battery cells were manufactured by Samsung’s own South Korean subsidiary, Samsung SDI Co., and the latest word from around the world seems to suggest that Samsung will not be using Samsung SDI batteries in the subsequent units of the Galaxy Note 7 phablet.
Samsung SDI had reportedly supplied batteries for 70 percent of the total units, and the other manufacturer, Amperex, had only supplied batteries for Galaxy Note 7 units sold in China. Notably, Chinese units of the Galaxy Note 7 are the only ones that have remained unaffected by this issue. The flagship phablet was launched last month, and aimed to consolidate Samsung’s position in the flagship smartphone segment ahead of Apple’s iPhone 7 launch scheduled on September 7. However, this unprecedented situation has led to Samsung recalling Galaxy Note 7 units globally to ensure user safety, putting a significant delay in shipments, sales and even hampering the operating profit margins that Samsung Electronics had marked out for itself with the phablet.
While the exact impact of Samsung’s Galaxy Note 7 recall remains to be seen, there are a number of repercussions that have been reported. Android Authority cites Credit Suisse’s analysis to state that Samsung had initially expected to generate $108 of operating profit with the Galaxy Note 7, and had expected to sell up to 9 million units before the end of 2016. This adds up to nearly $1 billion in revenue, plus additional amounts that the company may have expected to garner with the head start on Apple’s iPhone 7.
Not just the margins, Samsung is also facing the bottleneck of constricted supply lines. Even if Samsung managed to scale up its production rate, it is highly unlikely that Samsung will be able to deliver all the 2.5 million units called back and supply more units to gain any significant upper hand on Apple. The impact, while having the potential to hamper Samsung’s golden run in the smartphone industry, is not too significant on the numbers, though. As per Samsung’s Q2 2016 report, a loss of $1 billion will only knock off about 5 percent from Samsung’s projected income of $20.6 billion for the year.
This is a significant setback for the company that was looking to amplify its good performance in recent times. Samsung SDI shares have significantly declined since the issue began, but has shown signs of resurgence in today’s trade. Samsung is yet to disclose the alternate source of batteries if SDI is dropped out of supplying batteries for the Galaxy Note 7, and with the iPhone 7 launch due in less than two days now, the company may just have a lot on its plate to be wary of.
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