The Note 7 disaster has undermined Samsung’s recovery. The world’s largest smartphone maker said third quarter operating profit will be about two-thirds of the amount it was projecting just last week. The news comes on the heels of Samsung’s highest quarterly profit in two years, reported this summer.
Samsung has stopped making the Note 7 phones and has advised customers to stop using them. The company said a few weeks ago that Note 7 devices shipped after Sept. 15 would come with green battery indicators to show that the batteries were safe, but then a phone purchased on Sept. 21 with a green indicator started smoldering onboard a Southwest Airlines flight (the plane was safely evacuated).
The U.S. Postal Service, Federal Express and UPS have all said that when consumers send Note 7 devices back to Samsung, they will not be transported in the U.S. by airplanes, meaning it could take a while for them to reach their destination. Samsung is sending its customers special fireproof boxes in which to pack the phones.
Samsung is now offering consumers a $100 credit if they exchange their Note 7 devices for another Samsung device. Consumers also have the option of getting a refund of the purchase price. Samsung recalled roughly 1 million Note 7 devices on Sept. 15, and has now recalled 900,000 more.
Just two months ago, the ad campaign that accompanied the Note 7 launch was topping the charts and generating excitement about the new device’s iris scanner and smart stylus. Users could unlock the phone by looking at it and use the stylus to translate text and edit video. Now Samsung will need to repurpose these innovations in another device if it wants to market them. The company reportedly plans to dispose of the Note 7 devices instead of harvesting their usable parts.
Samsung has been struggling for roughly two years, as Apple has steadily converted high-end smartphone users to the iPhone, and Chinese competitors have built share with entry-level Android buyers. The Korean conglomerate ships more smartphones than any other company, but its market share was sliding and its profits were under pressure until it launched the Galaxy S7 and S7 Edge. From a financial perspective, mobile devices have overshadowed Samsung’s other businesses, which include wireless base station transceivers and semiconductors, as well as TVs and many other home appliances.
The Note 7 recall coincides not only with Apple’s launch of the iPhone 7, but also with Google’s introduction of its Pixel smartphone. The $649 Android smartphone has not shipped yet, and in the U.S. it will be available only through Verizon Wireless.
