Hard time for Samsung - October 16, 2016
Samsung has a rather hard time with their Galaxy Note7s: they had to recall the product as they couldn’t fix the phones’ worrying explosion problems. The stocks are holding on for the moment but they are expected to face a $17 billion loss.
The first news of exploding Note7s came at the end of August, not much after phones started to be shipped to customers. After some days, more and more stories of exploding phones hit the web and in the end Samsung had to recall the phones and offer replacements. But it was too late: stocks saw a relatively big fell in that time.
What made it even worse for Samsung, is that their replacement phones exploded as well. There were several cases of faulty replacements, and big American carriers swapped Samsung Galaxy Note7s for any other smartphone. In the end, Samsung had to stop the production of the phone and recall it altogether. This hurt the prices really bad again.
The part that causes explosions is battery related but so far there’s no perfect explanation for the problem. It must have been hard for the company as the phone got generally great reviews making it one of the best phones to date.
Contrary to the problems with the Note7, Samsung’s profit is still growing and they managed to beat their estimates in Q3. This might be the reason why Samsung’s stock didn’t flop completely, but it’s a bad sign that after the total recall they slashed their profit forecast by a third. Some analysts expected they will lose $5 billion with the recalls, but after the total cancellation of the product Credit Suisse estimated a breath-taking $17 billion loss, while it’s hard to put a price tag on the harm this situation did to the brand.
Generally speaking, Samsung will probably come around but this whole problem shows us again how important diversification is, and that even the biggest companies can have serious problems. Just to name one: last October, we saw Volkswagen lose 35 percent of its market value in weeks due to the emission scandal.