Samsung Galaxy Note 7 mass recall may cost company close to $1bn

Samsung's mass recall of the Galaxy Note 7 smartphones worldwide over faulty batteries may cut the Korean company's 2016 second-half operating profit by about 820bn won ($738m, £554m) as per an analyst report. Another report says the total cost borne the company could well amount to $1bn. The company announced a global recall of the recently launched Note 7 smartphone last week after receiving close to 35 official complaints of malfunctioning most of which were related to batteries that caught fire while being charged.

Hwang Min-sung, an analyst at Samsung Securities, a diversified venture of Samsung itself, said he expects the recall and the replacement programme to cost about 120bn won by the third quarter itself. This would put pressure on the company's estimated forecast and drag down the operating profit by 400bn won, given its operating margin and selling prices. Further, in the fourth quarter, the recall is estimated to cost another 300bn won.

Min-sung says the calculation takes into account most of the Note 7 devices that will be produced in September that are likely to be used for the replacement programme thus reducing the estimated sales target for the Note 7 to three million units from six million units for the third quarter. He, however, maintains that the price of Samsung Electronics shares will not be affected a great deal and is expected to be around 1,800,000 won per share as strong sales of the Galaxy S7, the company's other premium device for 2016, will continue.

"The recall is a negative factor in the short term but will surely be a wise decision because other alternative measures are unlikely to help Samsung regain confidence from consumers and investors," he said.

A Bloomberg report on the other hand estimates that Samsung may have to spend as much as $1bn, in the replacement of all the 2.5 million Note 7 phones that have been shipped so far. When asked about the financial impact of the mass recall, Koh Dong Jin, head of Samsung's smartphone business, said at a press conference in Seoul that it was a "heartbreaking amount.''

The Korean smartphone maker which currently leads smartphone shipments in the world has been facing a crisis with its latest premium flagship smartphone the Galaxy Note 7 since users started reporting explosion of the device. What looked like standalone incidents initially turned into a big problem for the company as it acknowledged receiving reports of 35 verified incidents of the Note 7 malfunctioning out of which most were related to explosive batteries. Not wanting to take further risk, the company announced a global recall last week.