Samsung Electronics on Thursday said it aims to recover quickly from the disastrous withdrawal of the fire-prone Galaxy Note 7 that dragged third-quarter mobile earnings to their lowest level in nearly eight years.
The South Korean giant said it was expanding its probe into the Note 7 fires beyond batteries, as it tried to reassure investors that it would get to the bottom of one of the worst product failures in tech history.
It also held out the prospect of greater returns by disclosing considerations of a share buyback, talked up its semiconductor business and promised to consider proposals for a corporate makeover from US hedge fund Elliott Management.
“We know we must work hard to earn back your trust and we are committed to doing just that,” said co-chief executive JK Shin as he apologised for the debacle at a general meeting in Seoul following the release of the company’s results.
Investors now expect sweeping management changes in response to the Note 7 failure, especially after voting on Thursday to make parent conglomerate Samsung Group’s de facto chief, Jay Y Lee, a Samsung Electronics director.
Jay Y. Lee, the only son of Samsung Electronics chairman Lee Kun-hee and the company’s vice chairman, attends the 2015 HO-AM Prize ceremony in Seoul. (Image: Reuters)
Lee, 48, the son of patriarch Lee Kun-hee who has been hospitalised following a heart attack, will now have greater accountability at the group’s flagship company and a clearer mandate to play a public role in setting strategy.
The world’s top smartphone maker posted a 96% plunge in third-quarter mobile earnings to 100 billion won ($87.63 million) from a year earlier, their lowest level since the fourth quarter of 2008.
Operating profit was 5.2 trillion won ($4.57 billion), matching Samsung’s revised guidance. The firm initially estimated a 7.8 trillion won profit but cut its guidance to reflect losses incurred in the Note 7 withdrawal.
The Apple rival said it now aimed to achieve fourth-quarter profit close to that of October-December of 2015, on the back of sales of Galaxy S7 phones and lower-tier models. Galaxy S7s were on track to set a new record for launch-year sales, it said.
“Looking ahead to the fourth quarter, the company expects earnings to improve (from a year earlier) driven by strong performance in the components business,” Samsung said in a statement.
Samsung has already warned of another $3.1 billion hit to profit from the Note 7 withdrawal through the first quarter of 2017, all but guaranteeing a third straight year of earnings decline for the smartphone business.
Co-CEO Shin said the battery might not be the only problem, suggesting the root cause may be more difficult to determine than had been hoped.
“The key is whether Samsung will be able to remove uncertainty surrounding Note 7 and maintain its leading position in the smartphone market,” LS Asset Management fund manager Kim Sung-soo said.