Samsung Has No Room for Error with its Next Smartphone
Samsung Electronics Co Ltd (KRX:005930, 005935) can blame the “Galaxy Note 7” for its performance in the third quarter of 2016. Samsung showed a heavy drop in revenue, which puts pressure on the company to launch a replacement sooner than expected. The only positive factor was that the company’s semiconductor business continues to grow.
During the presentation of its results, Samsung was noticeably embarrassed. It mentioned the Galaxy Note 7—a “phablet,” as larger smartphones are called—only once. The South Korean electronics giant clearly wants to set the Galaxy Note 7 battery-exploding disaster aside. By the company’s own admission, the otherwise highly desirable phone hurt the company’s overall business. (Source: “Samsung’s halt of Galaxy Note 7 hurt third-quarter GDP: finance ministry official,” Reuters, October 25, 2016.)
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Revenue fell 7.5% year-over-year to $41.89 billion (₩47.82 trillion). Samsung’s “IT & Mobile Communications” segment, which combines mobile and connectivity solutions for network equipment manufacturers, was the biggest revenue generator. But even this segment showed a decline of as much as 15%. Perhaps the most dramatic indicator was the operating income from the company’s mobile division. Now sitting at just $88.0 million, it was $2.1 billion a year ago and $3.8 billion in the second quarter of 2016—before the batteries started exploding. (Source: “Samsung Profit Falls Sharply In Wake Of Galaxy Note 7 Recall,” The Huffington Post, October 27, 2016.)
It wasn’t all about the Galaxy Note 7 debacle, though. There were some bullish highlights in the results. Consumer electronics sales and profits were up as sales of high-margin products, such as HD televisions, increased 47%, while sales of curved-screen models surged 72%.
Samsung has certainly gotten a beating lately. But consumers and investors must wait until next March for a chance to forgive Samsung. That’s when the company will release its replacement for the troubled and recalled Galaxy Note 7: the “Galaxy S8”. The Galaxy S8 will be Samsung’s chance to get back in the smartphone domination contest.
Indeed, much is resting on the Galaxy S8. The phone is rumored to have a much sleeker design and software enhancements. Samsung hopes that its purported artificial intelligence (AI) capability will draw customers back to the brand. Clearly, there is a lot of pressure on Samsung. Apart from the new features, sleek design, and overall appeal, the new Galaxy S8 will need to have a reliable battery. Because, all promises aside, you can bet that Samsung has no room for error this time. Another Galaxy Note 7-like fiasco could be fatal.
