Daily Management Review

Recall Crisis for Samsung Results in Wiping out of More than $14 billion off Shares


09/12/2016




Recall Crisis for Samsung Results in Wiping out of More than $14 billion off Shares
After Samsung urged Galaxy Note 7 users to switch off and return their devices following reports batteries in the handsets were catching fire, the South Korean company’s shares fell nearly 7 percent to hit their lowest level in two months.
 
Amid increased concern from investors over the potential damage that the recall could cause to the world's largest smartphone maker by market share, over 16 trillion won ($14.3 billion) was wiped off Samsung's market capitalization.
 
Shares of Samsung closed down 6.98 percent at 1,465,000 won.
 
There could be an impact to Samsung’s third-quarter operating profit to the tune of v due to the recall issue, said Myung Sub Song, an analyst at HI Investment & Securities. Down from estimates of around 12-15 million, shipments of the Note 7 is expected to total around 6 million in the third and fourth quarters by analysts.
 
"The most important thing is whether the new Note 7 which will be released from now on will have another problem or not. If it has a problem then it will have a bad impact to the Note 7 and also Galaxy S8 which will be released in the first half of next year," Myung Sub Song told CNBC by phone on Monday.
  
The Galaxy S8 is slated to be Samsung's next flagship device.
 
Samsung urged customers to exchange their Note 7 devices in a statement issued over the weekend.
"Our number one priority is the safety of our customers. We are asking users to power down their Galaxy Note7s and exchange them as soon as possible. We are expediting replacement devices so that they can be provided through the exchange program as conveniently as possible and in compliance with related regulations. We sincerely thank our customers for their understanding and patience," DJ Koh, president of Samsung's mobile communications business said.
 
Samsung's S Pen stylus can be used to carry out a range of functions from writing to translating text and comes with the Note 7.
 
By advising Note 7 users to either not turn on or charge their devices during flights, or put it in checked baggage, the U.S. Federal Aviation Administration (FAA) added to Samsung's woes on Friday.
 
In a bid to get a headstart on rival Apple’s iPhone 7 which was launched last week, Samsung released the Note 7 in August. But there are concerns that some Note 7 users could jump ship to Apple with the iPhone 7 already available for pre-order.
 
The recovery Samsung has seen in its mobile division would be hampered by these issues. Helped by raising the sales proportion of the Galaxy S7 Edge to over 50 percent of shipments in the second quarter of 2016,  the operating profit for its IT and mobile communications division – of which smartphone sales are a large chunk – were up 56 percent year-on-year.
 
With the company still going strong in other areas from semiconductors to new display technologies, investors said that the slide in Samsung shares could be a buying opportunity.
 
"We think there's no doubt that this is bad news but we think that it's totally over-represented inside everything else that Samsung at the moment is getting right. So we would be looking for this story to maybe build in the next couple of days and as the headlines reach a crescendo we would look at this as an opportunity to get into a huge company that's doing an awful lot of other things right," Neil Dwayne, chief investment officer for European equities at Allianz Global Investors, told CNBC in a TV interview.
 
(Source:www.cnbc.com) 






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