Samsung Shares Hit Over Galaxy Note Delays, Battery Explosion Claims

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Samsung Shares Hit Over Galaxy Note Delays, Battery Explosion Claims

Highlights

  • The firm announced the delays for quality control testing on Wednesday
  • Quality control problems could deal a major blow to Samsung
  • One user posted images of a charred Galaxy Note 7

Tech giant Samsung Electronics touched two-week lows on Thursday on concerns for mobile earnings after it delayed shipments of its premium Galaxy Note 7 smartphone amid reports of exploding batteries.

The firm announced the delays for quality control testing late on Wednesday and also said Galaxy Note 7 shipments to South Korea's top three mobile carriers had been halted, rattling investor hopes for strong second-half mobile earnings.

Quality control problems, if confirmed, could deal a major blow to the world's top smartphone maker, which was counting on the Galaxy Note 7 to defend sales momentum against new Apple Inc phones expected to be unveiled next week.

"Apple is supposed to show off the iPhone 7 next week and this issue (with Samsung) has emerged, so the current state of things do not look good," HDC Asset Management fund manager Park Jung-hoon said.

A decline in Samsung's smartphone average selling prices and profits appeared inevitable given the current problems with the Galaxy Note 7, he added.

"Samsung will need to respond to this quickly in order to calm market jitters," he said.

Samsung's shares were down 3 percent at KRW 1.572 million (roughly Rs. 94,000) as of 0150 GMT, compared with a 0.8 percent drop for the broader market.

The South Korean firm did not elaborate on what potential problems it was testing for or whether shipments to other countries were affected. The South Korean mobile carriers affected are SK Telecom Co Ltd, KT Corp and LG Uplus Corp.

One user posted images of a charred Galaxy Note 7 on a South Korean website called Ppomppu, claiming the phone caught fire while charging. South Korean media have reported several similar incidents.

Samsung Electronics sister company Samsung SDI Co Ltd said that while it was one of the suppliers of Galaxy Note 7 batteries, it had received no information to suggest that its batteries were faulty.

The phone, which launched in South Korea and other markets on August 19, retails at KRW 988,900 ($887.23 or roughly Rs. 59,000) in South Korea.

Production problems for the curved displays for the Galaxy S6 Edge phone resulted in disappointing sales last year, and Samsung risks a repeat this year if it cannot address the Galaxy Note 7 problems quickly.

Hyundai Securities said in a report released on Thursday that the Galaxy Note 7's problems appeared to be related to modules or parts, and that such "malfunctions" should be resolved "within a matter of few weeks."

The brokerage retained its third-quarter operating profit forecast of KRW 8.5 trillion.

Samsung has said demand for the new phone is far exceeding demand, creating a shortage and forcing it to push back the launch in some markets. The firm has said it is utilising all possible means to boost production.

Samsung's other premium smartphone models that launched in March, the Galaxy S7 and S7 Edge, have been huge hits and lifted earnings in the first half.

© Thomson Reuters 2016

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