Samsung profits nosedive in wake of Galaxy Note 7 recall

SEOUL, Korea, Republic Of – Samsung Electronics reported a sharp fall in its quarterly earnings Thursday as the unprecedented recall and discontinuation of the Galaxy Note 7 smartphones wiped out its mobile profit.

Samsung’s July-September net income was 4.4 trillion won ($3.9 billion), down 17 per cent from 5.3 trillion won a year earlier.

The company’s profit from its mainstay mobile business showed a dramatic decline due to the Note 7 recall.

READ MORE: Canada, US ban Samsung Note 7 from all flights

Samsung issued the world’s largest smartphone recall in September after the flagship smartphones caught fire or overheated. But it was forced to recall the smartphone again earlier this month before discontinuing the model altogether after its replacement phones that were supposed to be a fix for the fire-prone phone also combusted or emitted smoke.

WATCH: Samsung send fireproof boxes to Note 7 customers

2:10 Samsung Note7: Use gloves or return to store?

Samsung’s troubled mobile business generated just 100 billion won ($87.9 million) in operating income during the quarter, compared with 2.4 trillion won one year earlier. Samsung’s mobile business usually contributes more than half of its overall income. It is the world’s largest smartphone maker.

Sales fell 7 per cent to 47.8 trillion won ($42 billion), while operating income slumped 30 per cent to 5.2 trillion won ($4.6 billion), in line with the company’s guidance earlier this month.

WATCH: Home security camera footage captures Samsung Galaxy Note 7 catching fire in woman’s hand  

1:13 Home security camera footage captures Samsung Galaxy Note 7 catching fire in woman’s hand

While mobile profit shrank dramatically, Samsung recorded solid earnings from its component businesses, especially its advanced chips for computers and next-generation smartphone displays called OLEDs. Together, its component businesses generated more than 80 per cent of the quarterly income in the latest quarter.

Analysts expect that those high-end components will be Samsung’s growth engine next year as more premium smartphone makers are expected to adopt Samsung’s OLEDs due to its flexible design while Samsung’s advanced chips will help the company save costs and charge higher prices.

READ MORE: Samsung permanently ends production of Galaxy Note 7

The South Korean tech giant said its annual investment this year will be at a record high as it seeks to expand production of those two lucrative components for computers and smartphones. Samsung said it will spend 27 trillion won ($23.7 billion) this year to increase production of OLEDs and an advanced chip that are expected to see huge demand growth.

The South Korean company, the world’s largest smartphone maker, is seeking shareholders’ approval to appoint Lee Jae-yong, the only son of its ailing chairman as a board member.