Samsung Electronics Co Ltd’s shares fell to their lowest level in nearly two months on Monday after the tech giant told customers to switch off and return their new Galaxy Note 7 smartphones due to fire-prone batteries.
Investors had wiped trillions of Korean won off the South Korean firm’s market capitalisation, as a series of warnings from regulators and airlines around the world raised fears for the future of the flagship device.
“Some said initially the Galaxy Note 7 could be the best smartphone ever, but now it’s possible the phone will go down as the worst ever,” IBK Securities analyst Lee Seung-woo said, predicting weak sales in the fourth quarter.
Samsung Electronics’ common shares were down 6.3 percent to KRW 1,476,000 (roughly Rs. 88,500) each after touching their lowest level since July 12, and were on track for their biggest daily percentage drop in more than four years.
Analysts said the recall could torpedo Galaxy Note 7 sales and have a lasting impact on the $211 billion (roughly Rs. 1,411,55 crores) company’s brand image, which could derail a recovery in its smartphone market share against rivals like Apple.
The global smartphone leader on Saturday urged all customers to turn off their Galaxy Note 7 units and return them as soon as possible as part of the recall which it voluntarily initiated on September 2.
Unprecedented
The recall is unprecedented for Samsung, which prides itself on its manufacturing prowess. Some analysts estimate the firm might lose KRW 5 billion worth of revenue after accounting for recall costs. The company had said it had sold 2.5 million Galaxy Note 7s that need to be replaced.
Nomura said it had cut its forecast for Samsung’s third-quarter mobile operating profit by KRW 900 billion to KRW 3.1 trillion (roughly Rs. 5,395 crores to Rs. 18,584 crores) in the wake of the Galaxy Note 7 recall.
“Even if Samsung puts Note 7s with new batteries in the market it won’t sell as well as it had initially,” HMC Investment analyst Greg Roh said.
“Long-term, it will cost Samsung significant marketing spending to ensure the next products can overcome this issue.”
The Galaxy Note 7 problems are a major blow to Samsung’s efforts to build on the strong sales of its Galaxy S7 smartphones launched in March.
The firm was beginning to claw back smartphone market share and had tried to pre-empt Apple by launching the almost $900 (roughly Rs. 60,000) Galaxy Note 7 on August 19, about a month ahead of the latest iPhone release.
The recall forced Samsung to halt sales indefinitely in markets such as the United States and push back launches in other regions such as Europe.