Samsung was forced to recall their new Galaxy Note 7 device not long after it was made available for purchase, as the device’s batteries started exploding when being recharged. This story has hurt Samsung, from accusations of rushing device production to get the handset out before the Apple iPhone 7 to worries over other Samsung Galaxy Android-powered devices. Whilst Samsung will recover from the issues it has experienced, it is likely to have an impact on the company’s sales and profit for at least two quarters in 2016. Different sources estimate different amounts that the “batterygate” issue will cost Samsung, but it could be up to $5 billion as consumers temporarily lose confidence in the brand. However, despite this, industry experts believe that later this week Samsung Electronics will report a small rise in third quarter profits.
The reason for the rise in profits is because Samsung Electronics manufacturer and sell many more products and devices than the Galaxy Note 7. In this case, analysts are predicting that Samsung’s strong portfolio of memory chips and displays (mostly AMOLED) is driving profits. In the detail, Samsung’s semiconductor market is benefiting from other manufacturers’ demand for their memory chips, such as Apple. Here, Samsung benefits from device manufacturers increasing their buying ready for the second half of the year, which is traditionally where manufacturers sell the most devices. Of course, there are many more manufacturers than Apple and Samsung has critical mass in memory storage markets for smartphones, tablets and bigger electronics. Samsung is also the dominant manufacturer in the OLED market, where it has a technological advantage over many peers and has relatively recently pushed the production cost of an AMOLED panel to less than that of an equivalent LCD panel. Other manufacturers, such as Samsung’s rival LG, are rushing to boost their own factory production levels of OLED panels, but it takes several months, if not years to increase the production rate, giving Samsung a tremendous advantage.
In terms of news stories, increased sales of memory chips and display panels is not as headline grabbing as exploding Galaxy Note 7 devices, but a panel of twenty industry analysts is overall expecting Samsung’s profits to nudge up by 0.7% to 7.4 trillion won, approximately $6.6 billion, for the third quarter profits. HDC Asset Management’s Park Jung-hoon, fund manager, said: “So long as the operating profit number comes in at a low 7 trillion won level, the market will look at it and think some of noise surrounding the Note 7 recall issue has cleared.”