Samsung's Q3 profit plunges on Galaxy Note 7 fiasco

A model demonstrates a Samsung Electronics' new smartphone Galaxy S7 during its launching ceremony in Seoul, South Korea, March 10, 2016. [Photo/Agencies]

SEOUL - Samsung Electronics saw its third-quarter profit plunge as the company's worst crisis surrounding Galaxy Note 7 smartphone resulted in a slash in earnings of its most profitable mobile division, a regulatory filing showed on Thursday.

Operating profit dropped 29.7 percent from a year earlier to 5.2 trillion won ($4.6 billion) in the July-September quarter. From three months ago, the profit tumbled 36.2 percent.

It marked the lowest in two years, meeting the revised estimate by Samsung which slashed its preliminary forecast by 2.6 trillion won to reflect costs from the discontinuation of its fire-prone smartphone.

Scores of reports about Note 7 phones heating up and catching fire led Samsung to terminate its latest flagship model. Hundreds of owners of the device here have sued Samsung for inconveniences they experienced in the recall and termination process.

The company's revenue declined 7.5 percent over the year to 47.82 trillion won in the September quarter, the lowest since the first quarter of last year. From the previous quarter, the revenue was down 6.1 percent.

Net income dropped to 4.54 trillion won in the third quarter from 5.46 trillion won a year earlier. From three months ago, the net income plunged 22.4 percent.

The Note 7 crisis is estimated to cost Samsung about 7.1 trillion won, including 3.5 trillion won in opportunity costs, 2.6 trillion won in direct costs and 1 trillion won in losses from the initial global recall.

The earlier recall on Sept. 2 of the fire-prone smartphones came just two weeks after its global debut. Following additional reports of replacement phones catching fire, Samsung was finally forced to discontinue the model.

Samsung's mobile division posted 100 billion won in operating profit, down from 2.4 trillion won a year earlier. The company expected the Note 7 effect to continue until the first quarter of next year.

Despite the Note 7 crisis, Samsung will not release its next flagship Galaxy S8 earlier than scheduled, according to a local media report. Galaxy S8 is forecast to be launched on Feb. 26, 2017, one day ahead of the opening of the Mobile World Congress in Barcelona, Spain.

Chip and display businesses, which provide components for rival smartphone makers and TV producers, fared well in the third quarter, helping offset soft earnings from the mobile division.

Operating profit was 3.37 trillion won in the chip-making unit compared with 3.7 trillion won a year ago. Stable memory chip prices and new smartphone launches from its competitors like Apple helped boost the semiconductor earnings.

The display unit logged 1.02 trillion in operating profit, topping 1 trillion won for the first time in three years on the back of higher prices of liquid crystal displays (LCDs).

Profit in the consumer electronics division was on the rise, with its third-quarter operating profit posting 770 billion won. The rising trend came on strong demand for premium TVs and high-priced appliances.

Samsung said this year's capital expenditure would be 27 trillion won, the largest ever by the company. It includes about 13.2 trillion won spending on semiconductor equipments to prepare for stronger demand in V-NAND flash memory chips.

About 10.9 trillion won would be spent this year on display facilities, more than doubling compared with the previous year, on expectations that demand will surge next year for organic light emitting diode (OLED).