Samsung earnings burned by Galaxy Note 7

Operating profit at the company's mobile division plummets 96 percent to its lowest level in nearly eight years.

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Steven Musil
2 min read

Samsung 's third quarter went down in flames.

The Korean electronics giant had pinned its hopes on the Galaxy Note 7 , a phone it expected to help its rebound in the mobile market. Indeed, Samsung expected to post a modest increase in its operating profit compared with the same period last year.

Samsung's hopes were dashed, however, when the company was forced to issue a worldwide recall of Galaxy Note 7 devices earlier this month after an apparent battery flaw caused dozens of the phones to explode or burst into flames. The company said in mid-October that it would discontinue the Note 7 after a subsequent recall of the device for continuing heat issues.

The effects of the public relations and business nightmare were clearly apparent on Wednesday when Samsung reported its worst operating profit in two years. The company logged 5.2 trillion won ($4.5 billion) in operating profit, a decline of nearly 30 percent year over year.

Samsung's mobile division, the division responsible for the Note 7, reported an operating profit of 100 billion won ($87.8 million), a decline of about 96 percent and its lowest in nearly eight years.

Revenue came in at 47.8 trillion won ($41.9 billion), a decrease of 7.5 percent from 3.87 trillion won ($3.4 billion).

The results shouldn't come as much of a surprise. After the recalls and cancellation of the Note 7, Samsung warned the debacle could cost upward of $5 billion.

What's perhaps most painful for Samsung is that it was mounting a comeback in the mobile space. The launch of the Galaxy S3 in 2012 crowned Samsung as the world's smartphone king and helped fuel five consecutive quarters of record profits. But the company's phone fortunes faded as subsequent flagship handsets failed to excite consumers.

The Galaxy S7 appeared to be the product Samsung needed to right its ship, contributing to a robust rebound for the past two quarters. The Note 7, which hit the market in mid-August, was expected to solidify Samsung's lead in the mobile market after the strong showing of the Galaxy S7.

The cause of the phone's overheating reportedly remains a mystery, creating a ripple effect that is said to be delaying development of the Galaxy S8, its next flagship phone. But the company has no plans to scrap the beleaguered Note moniker altogether, telling Reuters that a Note 8 will arrive next year.

Samsung hopes that phone won't be too hot to handle.