Samsung’s decision to permanently discontinue the Galaxy Note 7 may cost the company a heart-stopping $17 billion (about RM71 billion) in lost sales. This figure comes from initial analyst estimates of the Note 7’s global sales of 19 million units.
After failing to find the root cause of spontaneous combustion plaguing the Note 7, Samsung has finally taken the unprecedented step of permanently ending production of the device. Some 2.5 million units have been sold before the first round of recalls, and an estimate from Broker Nomura assumes the total devices manufactured so far is 4 million.
The $17 billion figure does not even take into account the disposal costs of an estimated 1.6 trillion won or $1.4 billion (about RM5.9 billion). Refund and recall exercise costs are also not yet considered – nor are the future marketing and branding exercises to revive the reputation of a company stained by this incident.
But with a market value of $235 billion (about RM985 billion) and $69 billion (about RM289 billion)in cash and equivalents within the company as of June 2016, the short-term loss can be absorbed by the company – even if the amount is shockingly huge.
What analysts are more worried is the long-term impact the Note 7 will have on the company. Some, like Nomura Securities, firmly believe the impact will mean lower demand for Samsung’s other devices as well. It isn’t surprising, given reports that some regulatory announcements at airports mistakenly call the Note 7 as “Galaxy S7”. In the eyes of the common consumer, that’s an easy mistake to make too.
The brand perception will be something Samsung will need to work extra hard to re-establish. When you’re the butt of an Internet meme, it will take a while before it can regain consumer trust.
Regardless, this is the highest-profile product termination seen in recent memory. Samsung’s next moves will be crucial in determining the course of the company’s future.
(Source: Reuters)
