Decent Q3 shifts Samsung's focus to next flagship smartphone Galaxy S8

A man walks past an advertisement for the Samsung Galaxy Note 7 in London, Britain, September 2, 2016. [Photo/Agencies]

Samsung Electronics Co is making its way through the Galaxy Note 7 debacle relatively intact.

On Friday, the South Korean company posted 7.8 trillion won ($7 billion) of operating profits for the third quarter. While it's a 4.2 percent drop quarter-on-quarter, the figure beat analysts' estimates for 7.58 trillion won compiled by Bloomberg and a 5.5 percent jump year-on-year.

The company's earnings had been recovering from a 2014 trough but have since been marred by the launch of the new Galaxy Note 7 model. Just days after the phones arrived on Aug 19, images and videos of exploding batteries and charred phones surfaced online. Samsung's top management held a press conference in Seoul on Sept 2, announcing that the company would replace all 2.5 million phones that had already shipped worldwide.

The news sent its shares tanking. The massive recall of one of Samsung's flagship devices, for which analysts expect the company to set aside at least $1 billion to $2 billion, had analysts pulling back on their profit forecasts for the third quarter.

Hana Financial Investment Co slashed its operating profit forecast of Samsung's IT & Mobile Communications Division by 43 percent to 2.31 trillion won for the three months that ended Sept 30.

But a more important question, analysts say, is what's next for Samsung to recover from monetary and psychological damages wrought by the Note 7.

"How much this recall has affected Samsung's reputation depends on how many new Galaxy S8 phones Samsung can sell," said Greg Roh, analyst at HMC Investment Securities, in an interview. The new models are scheduled to be launched in the first quarter of next year.

He added that due to the Galaxy Note 7 recall and a muted reaction to the new iPhone 7/7+ from Apple Inc, consumers are more likely to delay their purchases of new phones until both companies introduce their respective next flagship smartphones.

As consumers overseas are still very cautious, Roh reckons that Samsung will have to set aside more money to promote the Galaxy S8 than the S7. But, he concluded: "If the sales of the S7 and its following models turn out to be good enough, we can then say Samsung successfully overcame the crisis."