Samsung Galaxy Note 7 Recall May Cost Company as Much as $1 Billion: Report

Samsung recently suspended sales of the Galaxy Note 7 smartphone after multiple reports of battery explosions. The company was reported to be pulling the Galaxy Note 7 smartphones from market shelves in over 10 countries including South Korea and the US. The Samsung Galaxy Note 7 India shipments were also delayed due to the global recall of the smartphone. Now, a South Korean report speculates that the Note 7 recall may hit the company's operating profit for the second half by roughly $740 million, citing an analyst, while another estimate pegs the cost at $1 billion.

Hwang Min-sung, an analyst at Samsung Securities speculated that the recall as well as replacements could cost SKW 120 billion (roughly $110 million). Min-sung added that the recall will also hurt the sales target for the Galaxy Note 7 to 3 million units from the existing 6 million units in the third quarter. The recall is said to cost SKW 300 billion in the fourth quarter.

"In this case, it could cut Samsung's operating profit by SKW 400 billion, given its operating margin and selling prices. 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," Hwang was cited saying by Korea Herald. Overall, the Note 7 recall is expected to hurt Samsung in profits in the second half of 2016.

In the meanwhile, Bloomberg estimates Samsung may spend as much as $1 billion to replace the 2.5 million Galaxy Note 7 smartphones it has already shipped. Samsung's mobile chief, Dong-jin Koh, was asked to elaborate on the costs of the replacement programme at a press conference last week, but all he revealed was that it was an "heartbreaking amount." Bloomberg points out that the estimated cost is less than 5 percent of Samsung's projected net income this year. Some part of the costs are expected to be borne by the company's affiliated battery manufacturer, Samsung SDI.

Last week, Gadgets 360 had learnt that Samsung India was informing its customers who pre-booked the Note 7 and confirmed them about the delay, though no specific reason was provided by the company. The message read, "Thank you for pre-booking Galaxy Note 7. We regret to inform that delivery of your Galaxy Note 7 is being delayed. We sincerely apologise for the inconvenience. You can be assured that we are working hard to deliver your Galaxy Note 7 to you as soon as possible. Thank you for your understanding."

Samsung has claimed that the Galaxy Note 7 exploding issue has been traced back to a battery fault, and the battery issue is affecting only in 0.1 percent of the entire Note 7 units shipped. The South Korean company however has decided to recall all units giving the safety of the customers as their top priority.

Samsung launched the dual-SIM variant of Galaxy Note 7 at Rs. 59,900 in India, and was taking pre-orders till August 30.

In separate news, Oculus has warned Gear VR users to not use the headset with the Samsung Galaxy Note 7. In a note on the official Oculus site, the company noted, "Samsung has issued a product exchange program for all Note7 devices due to battery issues. Don't use your Note7 with Gear VR until you get your replacement."