Earnings

Samsung CEO Speaks Out About Galaxy Note 7 Problems

In news surprising to no one, The Galaxy Note both literally and figuratively torched Samsung’s earnings last quater.

Samsung Electronics just logged its lowest quarterly profit in two years, all but erasing earnings from its mobile unit in the three months to October. And worse than the monetary hit, Samsung is now fighting to fix its reputation and trying to find ways to push the promotional efforts for its Galaxy S7 phones to compensate for lost Note 7 sales.

These include offering incentives to customers to buy its Galaxy S7 and then receiving a discount on next year’s model.

Samsung reported third-quarter net profit had dropped 17 percent year-on-year while operating profit tumbled 30 percent to its lowest point in two years. Shares were up 0.6 percent by mid-afternoon trading after the group attempted to assuage investors’ concerns with a pledge to achieve “solid earnings growth” in 2017.

Specifically, Samsung pledged to improve the quality assurance processes and to “strive to achieve comparable year-on-year earnings” for the fourth quarter. Samsung forecast a turnround in the mobile business next year with the launch of new flagship smartphones including the Galaxy S8, which is due to be introduced in March.

The dreary numbers came as heir apparent Lee Jae-yong received shareholder approval to join the board of the South Korean technology group. Lee’s father and Samsung’s chairman Lee Kun-hee has been recovering from a heart attack since 2014.

The relatively unproven heir apparent has been thrust into the limelight amid the company’s biggest crisis in years as it struggles to contain the damage from the botched recall and replacement program for its Note 7. Analysts said that a board seat would allow Mr Lee to take a bigger role in Samsung’s strategic decision-making, such as group-wide restructuring.

“Now that he came to the fore, he will likely accelerate group-wide restructuring to simplify the ownership structure. I believe he will be more shareholder-friendly, unlike his father,” said Park Ju-geun, head of corporate research group CEO Score. “But his challenges remain tough. His biggest mission will be to find new growth drivers beyond smartphones, which are already saturating.”

“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 apologized for the debacle at a general meeting in Seoul following the release of the company’s results.

As for why the phones caught fire?  They are still working that out — but have definitely promised to fix it just as soon as they figure out the cause.

“What is important is clearly investigating the cause,” said Lee Seung-woo, an analyst at IBK Securities. “It cannot develop a new product on top of the imperfect platform of the Galaxy Note 7, which had all of Samsung’s latest technologies.”

 

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