Samsung shares fall to lowest level in two months as investors price in Galaxy Note 7 recall
Things were looking great for Samsung last month. The Galaxy S7 was performing well and the Galaxy Note 7 had received a lot of praise soon after it was unveiled. Samsung shares were surging to new record highs as investors were bullish about the company’s continued sales momentum in the second half of this year. It all came crashing down when Samsung confirmed a battery cell issue with the Galaxy Note 7 which has forced it to recall and replace all 2.5 million units shipped since the Galaxy Note 7 was released on August 19.
Investors absorbed the news and held their nerve so there wasn’t an immediate reaction but after the Federal Aviation Administration sent out a warning against the Galaxy Note 7 they started dumping shares which caused Samsung to lose some $10 billion in market value. That loss in market value has now doubled as investors price in what they believe to be the true impact of the Galaxy Note 7 debacle. Investors were seen dumping their positions after Samsung told Galaxy Note 7 owners to power down their phones and urged them to take part in the replacement program.
Samsung shareholders have seen the biggest two-day price drop since the 2008 financial crisis, over $20 billion have now been erased from Samsung’s market cap and even though the recall is expected to cost Samsung around $1 billion the impact on its brand value is believed to be even higher. Analysts are now of the view that even though Samsung will be selling the Galaxy Note 7 with new batteries the handset will just won’t sell as well as it would have had this entire debacle never happened. Some expect that Samsung might lose as much as $5 billion in revenue due to the Galaxy Note 7 recall.
Samsung hasn’t released its earnings guidance for the third quarter as yet but are likely to see a glimpse of the true financial impact of the Galaxy Note 7 recall in its expected revenue and profit.