The Samsung Dilemma

The biggest risk isn't that the Korean company will lose market share, but that it will sell cheaper to win back trust.
At Closing, April 20th
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Samsung's Note 7 battery fiasco comes as the South Korean company has begun to rely on its telecommunications unit for almost half of its revenue amid weaker growth in semiconductors and displays. 

Phone Business

Telecom equipment has become a bigger share of Samsung's revenue over the past few years

Source: Bloomberg

As the world's largest smartphone maker with a more than 20 percent market share, even a total write-off of all its Note 7 handsets would barely dent overall shipment numbers. Yet the reported cost of as much as $2 billion could take a relatively more painful toll on earnings because the Note 7 is a high-end device. 


One downside of its higher average selling price is that each lost unit will be more expensive to replace -- or result in a greater amount of lost revenue. 


Samsung currently charges 26 percent more per smartphone than the market average. If it can maintain that pricing power despite the massive recall costs and a possible decline in market share, then there's every chance it can limit the downside and even boost operating profit.


What may be unquantifiable is the loss to Samsung's reputation. Cutting prices to chase customers and buy loyalty may help the company maintain market share, yet that would surely result in slimmer margins at a time when it enjoys higher profitability than most competitors.

A better longer-term strategy would be to boost its R&D focus, invest more in quality control and spend money on marketing to win back trust.

A Bet on Forgiveness

Investors don't seem too concerned about the possible costs and lost revenue from Samsung's massive Note 7 handset recall

Source: Bloomberg

Each of those choices would increase costs in both the short and long term. But so far it looks like investors are willing to ride out the storm in the belief customers will be forgiving.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

    To contact the authors of this story:
    Tim Culpan in Taipei at
    Rani Molla in New York at

    To contact the editor responsible for this story:
    Katrina Nicholas at

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