Samsung lost billions of dollars over Galaxy 7 - TIME Business

Samsung’s Smartphone Recall Is Costing It Billions of Dollars

Posted: 12 Oct 2016 06:44 AM PDT

(SEOUL) – Samsung Electronics Co slashed its quarterly profit estimate by a third on Wednesday, soaking up a $2.3 billion hit from ditching its flagship smartphone in what could be one of the costliest product safety failures in tech history.
Quantifying the financial pain of Tuesday’s move to scrap the Galaxy Note 7 smartphone after a global recall and weeks of mounting problems, the world’s top smartphone maker said it expects its July-September operating profit was 5.2 trillion won ($4.7 billion), down from the 7.8 trillion won it estimated five days ago.
Samsung said in a statement the 2.6 trillion won ($2.3 billion) guidance cut reflects the sales and earning impact it currently expects from the decision to permanently halt sales of the $882 Note 7 device. Its third-quarter revenue estimate was also cut to 47 trillion won from 49 trillion won previously.

The new earnings guidance is 30 percent below third-quarter 2015’s operating profit, and left investors and analysts pondering the longer impact on Samsung’s brand and earnings. Rival suppliers of smartphones that use the Android operating system, like Samsung’s, stand to benefit if the Note 7 damage drive consumers elsewhere.
“It’s possible there could be additional profit impact in the fourth quarter but it likely won’t be as large as the third quarter,” said Park Jung-hoon, a fund manager at HDC Asset Management, which owns shares in Samsung. “I think it’s possible for fourth-quarter profits to come in as much as the high 7 trillion won range.”
Samsung shares ended down 0.7 percent on Wednesday, with the Seoul market closing before the earnings guidance cut was announced.
HDC’s Park said the initial guidance issued last week likely already factored in a 1 trillion won profit impact, putting the total third-quarter earnings hit at around 3.6 trillion won. While this was a major blow, he said some investors had feared the profit impact could be as large as 5 trillion won this year.
Billion-dollar buyback?
Samsung shares have already fallen 10 percent this week and are on track for their biggest weekly decline since May 2012, having touched a one-month low of 1.494 million won as investors worried the Note 7 crisis could inflict long-term damage on Samsung’s reputation and earnings.
Some investors said Samsung may need to return more cash to shareholders, either through a dividend or additional buybacks, to calm market jitters. HDC’s Park said the cash-rich firm may need to announce a buyback of between 2 trillion won and 3 trillion won in order to mollify shareholders whose nerves have been jangled.
The tech giant announced the recall of 2.5 million Note 7s in early September following reports of the phones catching fire. The firm appeared to have the situation under control as it issued replacement devices with different batteries, until new phones also began to smoke and combust.
Investors and analysts agreed that the damage to Samsung’s brand and future earnings would deepen the longer the market was left in the dark about the origin of the fault. Some have already predicted lost revenue in the region of $17 billion for Samsung.
“There needs to be explanation from Samsung in order for consumers to understand that problems won’t occur in the next models…Samsung needs to clearly explain and admit what went wrong,” said IBK Asset Management fund manager Kim Hyun-su. The asset manager owns shares in Samsung.
Samsung would likely push ahead to get the latest version of its premium S-series smartphones to market as soon as possible, fund managers said. Typically, the South Korean company unveils a new Galaxy S phone on the sidelines of the Mobile World Congress tech trade show in the first quarter as it battles AppleInc to stay at the top of the smartphone market.
‘Damage control’
Experts are baffled by what could be causing the overheating in the replacement phones, if not the batteries, and Samsung has not commented.
An official at the Korean Agency for Technology and Standards, which is investigating the problem alongside Samsung, said the fault in the replacement devices might not be the same as the problem in the original product. The official asked not to be identified as he was not authorised to speak publicly.
Aviation authorities and airlines around the world are telling passengers to switch off their Note 7s and keep them out of checked baggage, amid fears they could bring down a plane.
“Damage control at Samsung will face an uphill battle to redeem the company’s tarnished image owing to the dangerous and dramatic nature of the phone’s failure,” Vijay Michalik, an analyst at research firm Frost & Sullivan, said.
While the damage to Samsung’s brand, if not its earnings, remains hard to quantify, negative publicity from the botched recall could touch off a turf war among Android smartphone manufacturers, analysts said.
Consumers tend to commit to their choice between Apple’s iOS operating system and Google’s Android, leaving Samsung’s fellow Android manufacturers such as LG Electronics Inc and Alphabet Inc’s Google in prime position to strike.
($1 = 1,114.7500 won)
(Reporting by Se Young Lee; Additional reporting by Joyce Lee and Nataly Pak; Writing by Lincoln Feast; Editing by Stephen Coates and Kenneth Maxwell)

Philippines's President Duterte is planning to break with USA -

Rodrigo Duterte has vowed to expel American troops from the Philippines, accused the C.I.A. of plotting to kill him and insulted President Obama with an obscenity.

But beyond the blasts of hyperbole — he recently compared himself to Hitler — lies a real and potentially historic shift in Philippines foreign policy.

In public statements and interviews during the past week, Mr. Duterte’s top foreign policy advisers said he was seeking to break the Philippines out of the United States’ orbit and signal to China that he is ready to negotiate closer ties after years of wrangling over its military presence in the South China Sea.

The move is a radical departure for a country that has historically been the most dependable American ally in Southeast Asia, and could undermine Mr. Obama’s so-called pivot to Asia, a keystone of his foreign policy. That strategy depends on American allies to counter China’s increasing power in the region.

move has already tilted the balance of power, said Richard Javad Heydarian, a political scientist at De La Salle University in Manila. By declining to press claims against China over disputed territory there, despite a favorable ruling by a United Nations tribunal, Mr. Duterte has made it hard for the United States to galvanize international pressure on China over the issue.

“Almost single-handedly Duterte has reshaped the regional strategic dynamics, with both Beijing and Washington recalibrating their next move in the South China Sea as they try to anticipate the Filipino strongman’s foreign policy trajectory,” Mr. Heydarian said.

Mr. Duterte, who is expected to visit Beijing this month, has made no secret of his worldview.

“I will be reconfiguring my foreign policy,” he said in a speech last week. And at some point, “I will break up with America.”

Often after Mr. Duterte makes an over-the-top pronouncement, an aide emerges to walk it back. But in this case, the retreat was slight.

Mr. Duterte was not seeking a breakup with the United States, the president’s spokesman, Ernesto Abella, explained, so much as “an open relationship.”

On Tuesday, Foreign Secretary Perfecto Yasay Jr. went further, explaining in a statement posted online that the Philippines needed to chart a new, independent foreign policy because “America has failed us.”

independence from the United States, its former colonial master, in 1946, Mr. Yasay wrote, “the United States held on to invisible chains that reined us in towards dependency and submission as little brown brothers not capable of true independence and freedom.”

American officials have sought to deflect and diminish the significance of these statements, and emphasize the benefits to the Philippines of the American presence.

“Our history of cooperation spans 70 years, and our commitment to this country remains unchanged,” the United States ambassador, Philip S. Goldberg, said Wednesday in a speech to the American Chamber of Commerce of the Philippines here. “The Philippines is a key strategic partner of the United States, and our military alliance, development assistance and commercial cooperation continue.”

Although Mr. Duterte declared last month that the annual joint military exercises now underway on the island of Luzon would be the last during his administration, American officials said his government had made no formal requests to halt any programs. Nor has it followed up on Mr. Duterte’s threat to eject American forces from the southern Philippines, where a rotating force of 50 to 100 troops helps combat Abu Sayyaf, an Islamic-themed kidnap-for-ransom gang.

“As it has been for decades, our alliance with the Philippines is ironclad,” the American defense secretary, Ashton B. Carter, said late last month.

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The United States is giving the Philippines over $90 million in military aid this year and has provided more than $1 billion in nonmilitary support over the last five years, much of it for disaster relief, American officials said.

On Friday, Defense Secretary Delfin Lorenzana said that “we can live without” the military aid.

Some of the tension between the allies has come from international outrage over Mr. Duterte’s bloody campaign against drugs, which has led to the killing of about 1,400 suspects by the police and hundreds of other extrajudicial killings. It was his concern that Western powers would lecture him over the policy that prompted Mr. Duterte’s denunciation of Mr. Obama, as well as similar tirades against the United Nations and the European Union.

Mr. Duterte, 71, identifies himself as a socialist and views the West through the lens of the Cold War and the Philippines as the victim of historic American imperialism.

But the recalibration also provides an opportunity to improve ties with China, the region’s biggest military power and largest economy. China was the Philippines’ second-largest trading partner last year, with total trade of $17.6 billion. (The United States was third and Japan first.)

China has been making inroads in the region with promises of investment and with its military expansion in the South China Sea, where it has occupied islands claimed by the Philippines, Vietnam and other countries, in some cases building forts.

That dispute led to deteriorating relations under the previous Philippines administration, which filed a claim against China with the United Nations maritime tribunal over the Scarborough Shoal, a reef claimed by both nations and occupied by China.

The tribunal ruled in the Philippines’ favor in July. There is no enforcement mechanism for the ruling, and it has been dismissed by China.

But the victory has given Mr. Duterte a stronger hand in negotiations, where he is expected to use the ruling as leverage in reaching his own deal with China in a way that will allow its leaders to save face.

In August, he sent former President Fidel Ramos, 88, to Hong Kong to meet with officials in what Mr. Ramos described as an effort to build trust and find common interests.

Advisers to the president say one potential deal would be to let China maintain control of Scarborough Shoal if it made concessions such as restoring access to Filipino fishermen and investing in infrastructure development in the Philippines.

“He doesn’t want to provoke China any further,” Jesus G. Dureza, a longtime friend of Mr. Duterte’s who holds the cabinet post of peace adviser, said in an interview. “He feels aligning with our allies against China is not going to benefit the country.”

Mr. Dureza said he and other cabinet members favored opening direct talks with China in part because of fear that, despite a 65-year-old mutual defense treaty, the United States would not be willing to defend the Philippines.

“The idea is that our allies are not going to go to war for us, so why should we align with them?” he said.

Relations with Beijing have already grown warmer, he said, with Chinese officials saying that now “we can talk like Asians across the table with Asians.”

At the same time, despite the sometimes harsh words, Philippine officials have made it clear that the new president does not want to abandon the United States.

“While we would like to foster a closer relationship with China, we will certainly not engage in any alliance with China in a military viewpoint because that has never been the intention of the president,” Mr. Yasay, the foreign secretary, said at a Senate hearing on Thursday. “The president, on many occasions, has said categorically that he will only have one military alliance, and our only ally in that respect is the United States.”

That statement may suggest a future in which the Philippines plays the big powers against each other.