Samsung's Galaxy Note 7 woes continue, with a recent report claiming that if the Galaxy Note 7 that exploded on a Southwest Airlines plane is confirmed to be a replacement unit, the company could be looking at a second batch of recalls.
However, despite the global recall program and its estimated cost to the company of $1 billion, Samsung's expected operating profit for the third quarter is even higher than analyst estimates.
The South Korean company believes that its operating profit for the third quarter increased by 5.6 percent to 7.8 trillion won, equivalent to about $7 billion, compared with the average analyst estimate of 7.4 trillion won, which is about $6.6 billion. The operating profit for last year's third quarter was also 7.4 trillion won.
The revenue for the third quarter, however, is expected by Samsung to decrease by 5.2 percent to 49 trillion won, which is about $43.9 billion, compared with the corresponding period last year.
Only overall estimates have been disclosed by Samsung so far, with the company to release the full results of its third quarter report, including the performance of its divisions, later this month.
Analysts had lowered their expectations on the company's performance for the third quarter after the announcement of the worldwide Galaxy Note 7 recall due to cases of exploding batteries. With the expected financial impact of the Galaxy Note 7 fiasco, how is it possible that Samsung is expecting an operating profit increase for the third quarter?
It is believed that the other business segments of Samsung were able to soften the blow of the recall program, specifically its chip and display divisions.
"Obviously the Note 7 recall costs were reflected but (business) segments such as memory and OLED (organic light-emitting diode) displays did well and will probably continue to do so until at least next year," according to Kim Hyun-su, a fund manager for IBK Asset Management.
The semiconductor business of Samsung remains the top memory chip manufacturer in the world, ironically due to the success of its rivals in the smartphone market, including Apple. With Apple ordering chips from Samsung for its iPhones and other companies doing the same in advance of the holiday shopping frenzy, the impact of the Galaxy Note 7 recall was not evident in the bottom line of the company.
It remains to be seen whether the global recall will have an effect in future quarters, but according to analysts, Samsung's chip and display business might continue to offset such an impact, as these divisions are primed to push the company's profits into great heights.
