Samsung Electronics has forecasted that its quarterly profits will be lower than was anticipated after halting production of its Note 7 smartphone.
Samsung Shares Come Tumbling Following Cancellation of Note 7 Model
The South Korea-based technology company expects profits for its third quarter to be $4.7bn, a third less than its earlier anticipated profits of 7.8tn won.
Last month, Note 7 was recalled after reports that the smartphone’s battery was catching fire but replacement phones had a similar problem. This informed Samsung’s decision to stop production altogether.
In Wednesday trading, Samsung shares fell by 0.8% ahead of warning about profits. This added to an 8% fall experienced on Tuesday.
In just two days, the company has lost over $20bn in market value with shares falling on concern that the crisis will exceed the cost of the recall and impact the brand’s reputation.
According to analysts, there is a possibility that this problem will cost the technology giant in the long term. The timing could not have been worse given that its rivals, Apple and Google are set to launch new phones targeting high end consumers.
Samsung’s Note 7 has increasingly been seen as the main rival to the iPhone 7, Apple’s newest smartphone model. The crisis has seen Apple’s shares shoot to a 10-month high.
By the end of September, Samsung had recalled an estimated 2.5 million phones after users complained of exploding batteries.
Even before it completely scrapped production, the firm had begun reducing production quotas of the Galaxy Note 7.
In a statement, the firm said, “Recently, we readjusted our production volume to allow thorough investigation and quality control. However, to prioritize consumer safety, we have decided to halt production of Galaxy Note 7s.”
Users can return their phone in exchange for a different Samsung phone or a refund. The company has further urged users to turn off their phones.