The aim for Samsung Electronics Co Ltd is to now quickly recover from the disastrous withdrawal of the fire-prone Galaxy Note 7. The company said that it was this disaster that had, for the first time in nearly eight years, dragged its third-quarter mobile earnings to their lowest level.
As the South Korean giant tried to reassure investors that it would get to the bottom of one of the worst product failures in tech history, it said that it was expanding its probe into the Note 7 fires beyond batteries.
By promising to consider proposals for a corporate makeover from U.S. hedge fund Elliott Management, talking up its semiconductor business and disclosing considerations of a share buyback, Samsung also held out the prospect of greater returns.
“We know we must work hard to earn back your trust and we are committed to doing just that,” said Co-Chief Executive J.K. Shin as he apologized for the debacle at a general meeting in Seoul following the release of the company’s results.
Now, especially after voting on Thursday to make parent conglomerate Samsung Group’s de facto chief, Jay Y. Lee, a Samsung Electronics director, investors now expect sweeping management changes in response to the Note 7 failure.
A greater accountability at the group’s flagship company and a clearer mandate to play a public role in setting strategy would be played by Lee, 48, the son of patriarch Lee Kun-hee who has been hospitalized following a heart attack.
But before seeing any heads roll at the family-run conglomerate, shareholders may have to wait for the Note 7 investigation to conclude. The company would assign responsibility only after the crisis was resolved, said Chief Executive Kwon Oh-hyun said at the shareholder meeting.
Noting their lowest level since the fourth quarter of 2008 and a 96 percent plunge from a year earlier, the world’s top smartphone maker posted earnings to 100 billion won ($87.63 million) in third-quarter.
The result spared Samsung from its first-ever mobile loss even though overall profit hit a two-year low, its first since the mass recall and subsequent cancellation of the premium Note 7 earlier this month.
Matching Samsung’s revised guidance, the operating profit was 5.2 trillion won ($4.57 billion). The firm cut its guidance to reflect losses incurred in the Note 7 withdrawal after initially estimating a 7.8 trillion won profit.
A finance ministry official told Reuters on Tuesday that 0.1 to 0.2 percentage points from South Korea’s third-quarter GDP growth in quarterly terms was erased by the scrapping of Samsung’s flagship phone.
A 110 billion won operating loss for the third quarter was separately reported by Samsung SDI Co Ltd, which supplied batteries blamed for the first Note 7 recall.
Riding on the back of sales of Galaxy S7 phones and lower-tier models. Galaxy S7s were on track to set a new record for launch-year sales, and the Apple Inc rival said it now aimed to achieve fourth-quarter profit close to that of October-December of 2015.
“Looking ahead to the fourth quarter, the company expects earnings to improve (from a year earlier) driven by strong performance in the components business,” Samsung said in a statement.
Samsung has all but guaranteeing a third straight year of earnings decline for the smartphone business as it has already warned of another $3.1 billion hit to profit from the Note 7 withdrawal through the first quarter of 2017.
(Adapted from Reuters)