It is indeed true that every challenge that a company faces has financial implications as well. Samsung Electronics Company is a multinational company who has been facing many challenges during the last decade. The most challenging one that was witnessed by the world was the turmoil that it faced after the launch of Samsung Galaxy 7. The battery of the phones caught fire, and many customers reported the similar incident. The situation became so much difficult for the company that the airlines started announcing special instructions on non-boarding of Samsung Galaxy Note 7 phone on its planes and announced it as a threat to plane safety.
These series of incidents caused Samsung to call back its phones from the market globally and provided the customers with replacement phones which it assured were safe. It recalled as many as 2.5 million of its Note 7s and tried to fix its defective battery. However, the replaced phones were reported to have caught fire as well. It raised concerns among the carriers of Samsung Galaxy Note 7, and they started suspending its sales of the Samsung Note 7. It led Samsung not only to stop the production of its Galaxy Note 7 but also to recall all of its phones from the market (Kovach, 2017).
The financial implications of this challenge are obvious. In the earnings report, the company Samsung had reported that it earned 5.2 trillion won in its third quarter, which is about 33.3 percent lower than its estimate of 7.8 trillion in profits. It also cuts back its estimate of its last quarter of 2 trillion won. The profit for the third quarter was marked by a drop of 29% from its earlier year third quarter. Other than this, shares of Samsung also dropped by 0.65 percent on the day of recall after seeing a total decline of 8%. A research company has estimated that the financial loss to Samsung from this case can reach up to US 10 billion. The true scale of the financial losses is, however, hard to determine as the quantification of damage being done to the brand name and goodwill of Samsung brand is not possible. All the negative publicity which made the consumers drive away from the brand is also not quantifiable, but is certainly a factor (Sang-Hun, 2016).
Another factor which has been a challenge for nearly all the tech-savvy companies is the cannibalization of its products. Cannibalization refers to the digesting of revenues of one product line of a company at the expense of one of its other product lines. By producing newly updated Smartphones continuously, Samsung is involved in cannibalization of its phones and making its old models obsolete in no time. The amount of time, resources, and effort that is being invested in designing and production of one model are then utilized in the production of a new model which cuts back the profits for the earlier ones (Kovach, 2017).
How much of financial impact does this have on the company is unknown and is extremely hard to determine? However, it is a fact that companies like Samsung and Apple tend to prefer cutting their old models’ revenue through cannibalization as compared to losing it to its competitors. The sales of tablets have been seen to fell, showing signs of customers switching to large-screen Smartphones instead of products like tablets. Samsung has reportedly announced the reason for its disappointing sales of small tablets because of the cannibalization by the large Smartphones of its own company (Linshi, 2014). These challenges have their financial implications, but these are hard to quantify as the extent of the loss is non-quantifiable.
References:
Kovach, S. (2017, Agust 23). Samsung’s Galaxy Note 8 will suffer from the same problems as before. Retrieved from http://www.businessinsider.com/samsung-galaxy-note-8-problems-2017-8
Linshi, J. (2014, July 10). Sales of Big Smartphones Are Totally Killing Tablets. Retrieved from Time: http://time.com/2973764/tablet-sales-smartphones/
Sang-Hun, C. (2016, October 13). Samsung estimates $3b loss over Galaxy 7 troubles. Retrieved from Financial Review: https://www.afr.com/technology/mobiles-and-tablets/Samsung/samsung-estimates-34b-loss-over-galaxy-7-troubles-20161012-gs11rj
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