The voluntary recall of the Samsung Galaxy Note 7 is now official and it is expected that the Korean gadget giant will take a substantial hit in profits because of this. The Galaxy Note 7 is one of their most expensive devices – being a phablet and a flagship at that. There was already a very high demand for the premium device and Samsung was already scrambling to get supply to market. That was a good problem to have, but this recall is a veritable disaster for Samsung. And at the other end of the supply chain, battery supplier Samsung SDI will take the brunt of the repercussions from the recall.

Samsung has officially announced that it will stop using batteries from Samsung SDI for the Note 7. “As a follow-up of the battery issue, we decided to temporally stop using Samsung SDI’s battery for Galaxy Note 7,” said sources from Samsung Electronics. Samsung SDI is the supplier for majority of the non-removable batteries for the Galaxy Note 7, but this series of fires and explosions definitely point to the involvement of their products.

As a result, Samsung will most likely go to Chinese battery maker ATL to fill the need for batteries as the voluntary recall begins. This will mean a bad second half of the year for Samsung SDI, and Samsung Electronics in general. If the global recall does happen, that will mean the return of 2.5 million units, and Samsung SDI is expected to bear the expense for most of the battery parts. “Together with the possible sales decline of Galaxy Note 7, Samsung SDI’s operating loss may stand at around USD$16 million in the third quarter,” said Lee Seung-hyuk, an analyst from Korea Investment & Securities.

Following the events surrounding the Galaxy Note 7, Samsung SDI’s stock price has dropped 2.76 percent, and will probably drop a little more. Samsung Electronics, for its part, is predicted to spend up to USD$1.35 billion for recalling the Galaxy Note 7 units. Other tech companies with products related to the Samsung Galaxy Note 7 have already started putting out notices of the recall. Oculus, who produce virtual reality software and apps usable bythe Samsung Gear VR system, has already put out a notice saying “Don’t use your (Galaxy) Note 7 with Gear VR until you get your replacement.”

SOURCE: Korea Herald