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Samsung Expects Massive Impact From Galaxy Note 7 Fiasco: Q3 Profit Forecast Lowered By $2.3 Billion

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The Galaxy Note 7 fiasco is expected to have a significant impact in Samsung's financials, with the company slashing its operating profit forecast for the third quarter by almost a third.

Despite the global recall program that was launched for the Galaxy Note 7, Samsung has previously said that it is still expecting a 5.6 percent increase in operating profits in the third quarter to 7.8 trillion won, which is about $7 billion, compared with the figure from last year's third quarter of 7.4 trillion won, which is about $6.6 billion.

That is no longer the case, as Samsung has lowered its expected third quarter operating profit down to only 5.2 trillion won, equivalent to about $4.6 billion. The lower forecast includes the losses that the company will incur from the recall program of the Galaxy Note 7 and Samsung's decision to end production for the smartphone.

With the new forecast, Samsung is now looking at a 29.6 percent decrease in third quarter operating profit year over year, which is a sharp turnaround from the 5.6 percent increase that was previously expected. In addition, the company has also written down its expected revenues for the third quarter, from 49 trillion won, or $43.5 billion, to 47 trillion won, or $41.7 billion.

Samsung might also be reporting a third quarter operating loss for its mobile division, according to IBK Securities analyst Lee Seung-woo. If this holds true, it would be the first time that the business would sink to a quarterly loss since 2011, when the first model in the Galaxy Note series was launched.

The analysis was echoed by SK Securities analyst Kim Young-woo, who said that the earnings of Samsung for the mobile division in the third quarter were wiped off because of the cost of the recall program and the lost sales for the Galaxy Note 7.

It should be noted that the financial impact that Samsung has included in its third quarter operating profit forecast only covers the direct cost of the Galaxy Note 7 debacle, which includes the stoppage of production and the return of the smartphones. The lower expected operating profit does not yet take into account the potential lawsuits and the permanent damage to Samsung's brand due to the explosive device.

As Samsung winds down the Galaxy Note 7, there have been reports of users deciding to keep the smartphone, fire risks and all. These people say that no other device offers the same capabilities as the Galaxy Note 7, which might not be a smart move, but shows that there is still a certain level of brand loyalty among consumers to Samsung.

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