Note7 disaster cuts Samsung Q3 profits by $2.3 billion

On a calamitous day for quarterly earnings guidance Samsung has written off 2.6 trillion Korean Won ($2.3 billion) on the back of its decision to pull the plug on the Galaxy Note7.

Samsung Electronics issued Q3 2016 earnings guidance on 7 October of 49 trillion won in sales and 7.8 trillion won of operating profit. Then reports that the supposedly fixed Note7s were exploding started to come in and Samsung eventually decided to throw in the towel on the Note7 permanently.

Since the Note7 was Samsung’s flagship product for Q3 (and Q4), you would expect writing it off entirely to leave a pretty sizable hole in its numbers. Today’s amendment to the pre-earnings guidance knocks 2 trillion won of sales off the total but even more from the profit, which presumably covers things like refunds, recall costs and goodwill as well as the lost sales themselves.

For reference in the same quarter last year Samsung banked 51.7 trillion won in sales and 7.4 trillion won in operating profit. So that’s a year-on-year sales decline of around 10% and a profit decline of around 30%. Intriguingly Samsung shares have stabilised, so maybe this was already priced in.

Among the many factors that contribute to this corporate tragedy is that Samsung announced its strongest profits for two years in Q2, and the Note7 was perfectly positioned to exploit an underwhelming iPhone 7 launch by Apple. This is at the very least a serious halt in momentum and Samsung must now do everything it can to contain the damage, both financial and to its devices brand.

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