14 DAY TRIAL // Last week, Samsung decided to announce a global recall of Galaxy Note 7 smartphones, after up to 24 reports of exploding batteries had been made on a scale of 1 million sold units. Samsung officials stated that they knew of 35 cases in which batteries caught fire while charging.
Faulty batteries could potentially bring harm to users, considering that many cases were reported with smartphones charging overnight. The company decided to conduct a massive recall, and all major US carriers have already stopped sales and offered customers replacements or full refunds for the handsets.
Samsung has also announced a program for compensating customers, and it is expected to start trading in faulty units for new ones this week. It’s a massive operation for the South Korean giant, which has to oversee that all Note 7 units are recalled, compensate customers and provide them with safe Note 7 smartphones.
This will surely have an impact on the company’s operating profits, and Yonhap News agency from South Korea estimates that Samsung’s profits in the second quarter could see a $738.2 million cut this year while some analysts say that the total loss could reach up to $1.34 billion.
Note 7 units to be produced this month will be used in the replacement program
Analysts say that the recall and replacement program could cost about $109 million. Another factor must be taken into consideration. Most of the units that will be produced in September will most likely be used for the replacement program, which means that Samsung’s sales target will also be affected.
The Note 7 could reach a sales target of 3 million units, from the 6 million units estimated for the third quarter, as Samsung is said to recall about 2.5 million Note 7 units. Aside from financial estimations, Samsung’s image has also been affected, on the eve of the new iPhone 7 and LG V20 unveiling this week. Customers might be shifting towards these new smartphones, considering Samsung’s recall.
The company has also stopped all marketing campaigns scheduled for this month, and sales have been halted altogether. Samsung’s current strategy is damage control, as it wishes to reduce the recall's impact on the company's image and make sure that incidents with exploding batteries don’t occur again.