Samsung mobile recovery suffers blow as Galaxy Notes 'catch fire' (updated)

LG Uplus

01/09/2016 08:39

* Shares touch two-week low on Q3 mobile earnings concerns 
    * Delay comes amid reports of new phone's battery exploding 
    * Note 7 shipments to S.Korean carriers have been halted 
    * Firm counting on the new premium device for H2 sales 
momentum 
 
 (Updates with local media reports on potential recall, closing 
share price) 
    By Se Young Lee 
    SEOUL, Sept 1 (Reuters) - The recovery in Samsung 
Electronics Co Ltd's  005930.KS  mobile business suffered a blow 
on Thursday as reports of exploding batteries forced the firm to 
delay shipments of Galaxy Note 7 smartphones, and knocked $7 
billion off its market value. 
    Investors drove the stock to two-week lows after the global 
smartphone leader told Reuters late on Wednesday the shipments 
had been delayed for quality control testing, and that shipments 
to South Korea's top three mobile carriers had been halted. 
    Faults with the new premium flagship device could deal a 
major blow to the South Korean giant, which was counting on the 
Galaxy Note 7 to maintain its strong mobile earnings momentum 
against Apple Inc's  AAPL.O  new iPhones expected to be unveiled 
next week. 
    "This is some major buzz-kill for Samsung, especially given 
all of the hard-earned excitement that products like the Note 7 
have been garnering lately," IDC analyst Bryan Ma said.  
    "The pending Apple launch puts all the more pressure for 
them to contain this quickly. The timing of this couldn't have 
been worse."     
    Samsung did not comment on what problem it was trying to 
address or whether other markets were affected besides South 
Korea.  
    Sister company Samsung SDI Co Ltd  006400.KS  said that 
while it was a supplier of Galaxy Note 7 batteries, it had 
received no information to suggest the batteries were faulty.    
     
    Several people posted images and videos of charred Galaxy 
Note 7s online and said their phones had caught on fire.  
    "Be careful out there, everyone rocking the new Note 7, 
might catch fire y'all," one user said in a YouTube clip showing 
a burnt Note phone. It was not immediately possible to confirm 
the veracity of the clip. 
    Samsung's shares, which hit a record high of 1.694 million 
won last week, fell 2 percent, and Samsung SDI tumbled 6.1 
percent, versus a 0.1 percent fall for the broader market 
 .KS11 . 
    Several South Korean media reports, without citing direct 
sources, said Samsung will soon announce a plan to recall 
affected Note 7 phones and replace their batteries as opposed to 
giving the users a new device. A Samsung spokesman declined to 
comment on the reports.    
     
    DAMAGE CONTROL  
    Last year, production problems for the curved displays for 
the Galaxy S6 edge model resulted in disappointing sales, and 
Samsung risks a repeat this year if it cannot address the Galaxy 
Note 7 problems quickly.           
    Its mobile profit is on track to post annual growth for the 
first time in three years, thanks to robust sales of the Galaxy 
S7 and S7 edge devices that it launched in March to critical 
acclaim.  urn:newsml:reuters.com:*:nL4N1AD62A 
    The Galaxy Note 7 received similar praise, raising 
expectations for strong sales in the second half. Samsung said 
in August demand for the new handset, priced at 988,900 won 
($882) in South Korea, was far exceeding supply, pushing the 
firm to delay the launch in some markets.  urn:newsml:reuters.com:*:nL3N1B455Y  
    HDC Asset Management fund manager Park Jung-hoon said it now 
appeared inevitable that Samsung's smartphone average selling 
price and profits would miss lofty second-half expectations. 
    "Apple is supposed to show off the iPhone 7 next week and 
this issue has emerged, so the current state of things do not 
look good," he said. 
    Though a components pick-up will buttress overall profits, 
Park said mobile operating profit might decline by up to 200 
billion won for July-September.       
    The mobile division accounted for about 54 percent of 
Samsung Electronics' January-June operating profit of 14.8 
trillion won.  
    Hyundai Securities said in a report that the Galaxy Note 7's 
problems should be resolved within a "few weeks". 
    The brokerage retained its third-quarter operating profit 
forecast of 8.5 trillion won.  
   ($1 = 1,120.8100 won) 
 
 (Reporting by Se Young Lee; Editing by Stephen Coates and Simon 
Cameron-Moore) 
 ((vincentsy.lee@thomsonreuters.com; +822 3704 5646; Reuters 
Messaging: vincentsy.lee.thomsonreuters.com@reuters.net; follow 
me on Twitter @Rover829)) 
 
Keywords: SAMSUNG ELEC SMARTPHONES/