With at least 35 cases of Samsung’s new Galaxy Note7 catching fire while charging, Samsung has halted further shipments of its devices.
The South Korean company will replace the phones that have already been sold, were at retailers and were in transit, Samsung said Friday. Future shipments are delayed.
How much will the ordeal cost the conglomerate?
It’s difficult to peg given the global scale, and the greater cost may come from damage to its reputation. Indeed, while other companies, like Apple, have issued their own recalls, Samsung has not faced such burdens, especially one that is so life-threatening.
Samsung declined to comment on the price tag for replacing the phones but admitted that it is not something to brush off. About 2.5 million had already been sold. Counterpoint Research estimates about 3 million had been shipped.
“It is a big amount that is heartbreaking,” Koh Dong-jin, president of Samsung’s mobile communications business, said at a news conference, according to CNNMoney.
Samsung lost about $7 billion of its market valuation after the company announced the delay in shipments on Thursday.
Such an ordeal is huge for Samsung given that its mobile division accounts for more than half of its profits. From January to June, Samsung’s operating profit was $14.4 billion, where mobile accounted for 54 percent.
The recall and delay could cost up to $1.34 billion from its 2016 operating profits, Credit Suisse estimates, according to Reuters. Credit Suisse pegged Samsung’s total operating profits for the year at $27.96 billion. In that scenario, the event would shave upwards of 5 percent off the total profit.
But that number is in its “absolute worst case” scenario. In replacing the phones, Samsung will gain back parts of the phone that could be recycled into new devices. While the exact cause of the explosion has not been determined, it may just be faulty batteries.
Time may be on Samsung’s side. The incident happened only two weeks after the release.
“Since this has happened quite early in the product launch cycle instead of post-holiday season, it won’t cause a huge dent for Samsung financially,” Jeff Fieldhack, research director at Counterpoint Research, wrote to Mashable in an email.
A full replacement of all shipped and in-store devices is immediately costly, but it could help to ease consumer’s panicked minds. Replacing models “helps enhance consumer confidence and help reduce potential falls in future sales,” HI Securities analyst James Song told Reuters.
Shares rose by more than 0.6 percent in trading Friday.
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