The cost of the Samsung Galaxy Note7 recall will be huge
Samsung has decided to recall the Galaxy Note7 following reports of exploding batteries. US customers who have purchased the Android flagship can ask for a full refund or opt to have it exchanged for a new Galaxy Note7 or a device in the Galaxy S7 line, coupled with a refund of the price difference. Samsung will also throw in a $25 credit on the user's phone bill or a $25 gift card for putting its customers in this position.
The recall may work differently depending on the market, but it is clear that affected customers will receive a free replacement Galaxy Note7, at least. And, as you can imagine, it will cost a pretty penny, seeing as there is only one market which is not affected -- Galaxy Note7 units sold in China have different batteries which are believed to be safe.
According to expert estimates, Bloomberg says that Samsung can expect to lose up to $1 billion on the recall, presumably after all is said and done. The South Korean maker will likely repair the affected units and sell them as refurbished to minimize the losses.
That would certainly make sense knowing that Samsung plans to introduce a refurbished phone program in 2017. It could decide to speed things up, to shift the repaired units.
A single Galaxy Note7 unit is reported to generate $600 in revenue for Samsung and $108 in profit, according to a Credit Suisse estimate. Samsung is said to have produced 2.5 million units already, which would have normally translated to $1.5 billion in revenue and $270 million in profit for the company.
Samsung has not said just how much it expects to lose after the recall is over, but the head of its smartphone efforts has revealed that it is a "heartbreaking amount". If it will, indeed, be $1 billion Samsung will still have a solid fiscal year. The company is expected to have a net income of around $20.6 billion for the year, which would stand to drop by less than five percent thanks to the recall.
Samsung's battery-making subsidiary, Samsung SDI, is said to be responsible for the faulty batteries -- which represent 70 percent of the batteries used for the Galaxy Note7. The remaining batteries are manufactured by Amperex Technology, but it is not yet known whether Samsung will use its batteries to fix the recalled units or produce fault-free ones.
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