Note 7 Fiasco Wipes $17bn off Samsung (KRX:005930)

This is non investment advice. The author has no position in whatsoever of the stocks mentioned. WCCF TECH INC has a disclosure and ethics policy.

It was merely under a week ago that we predicted that the Galaxy Annotation vii issues would cause huge issues for Samsung (KRX:005930). Calling information technology a disaster could accept genuinely been construed every bit hyperbole, now information technology'south maybe an understatement. Having first attempted to recollect the original products, which were believed to be burning and exploding due to defective batteries. The replacements were sent out and they likewise suffered from the same issues. Today, both the manufacture and sale of the Note 7 has been indefinitely suspended.

This has resulted in the largest drop for Samsung stock in eight years, with $17 billion being wiped from the company's market value. It's a huge blow for the company, fifty-fifty later on it revealed that it'south expecting to beat estimates for operating turn a profit for the third quarter of this year.

The Damage Has Been Done

Of form suspending the manufacture and sale of what Samsung (KRX:005930) was aiming to be a flagship production is going to be incredibly damaging. We previously covered the fact that the original call up was placed at an estimated cost of $1 billion. Following this is the fact that the Notation vii cost the company slightly under $500 to industry, generating a revenue and profit of $600 and $108 per unit respectively. The Note 7 is becoming a very expensive piece of Samsung's history given the fact that these units are effectively useless.

Apparently Samsung has produced about iv million Note 7's and then far for a full cost of just under $2bn. Tack on $1bn for the initial retrieve, another $270m if they give refunds to the initial 2.5m sold every bit they're likely about to announce earnings which include those profits, gives a niggling over $3bn loss. Unfortunately however, the story doesn't end there. Samsung had been expecting to earn about $17bn from the Note 7 over the life cycle of the production. $17bn they now won't earn. All of this has compounded to cause one of the worst incidents in recent history for Korea's largest chaebol.

What Next?

Samsung (KRX:005930) have a number of problems facing them at present. Legal claims have already begun, although with Samsung stopping sale and telling people not to utilise their Note 7'due south, this should largely be contained to past issues depending on what they offer existing owners. Every owner of a Note 7 will probable be refunded and those harmed will be due a reasonable amount of compensation. Non to mention the damage that this could exercise to the other consumer-product related sales that Samsung engage in, ranging from televisions and washing machines to SSDs.

What I expect, and something we have argued for, is the complete abandonment of the Note 7. The conglomerate has more than plenty profitable areas, including their booming components businesses, which will aid cushion the losses acquired by the Notation 7, as they already have. Furthermore, equally we accept too covered today, Samsung are increasing product of the Galaxy S7 to farther mitigate the losses of the Note 7. That much said, Samsung is heavily reliant on its mobile sectionalisation with most 45% of its profits last year coming from mobile.

One fear I take is that fear will cause the company to make a horrible option and blitz forward with the development and production of the S8. Rushing this could crusade the exact same problems that has led to this prolonged saga and cause most irreparable damage to their mobile partitioning. I personally use Samsung phones and I'm loyal to them, having never had an upshot before. It'd be incredibly sad to run into them rush forward without thinking and roll out some other faulty product, only in their biggest and near important line in the market.

Sources: Bloomberg, The Financial Times

Source: https://wccftech.com/note-7-fiasco-wipes-17bn-samsung/

Posted by: salinasformselly97.blogspot.com

Share this post