Tech

Galaxy Note 7 Recall Worries Bank Of Korea, High-Profile Controversy To Affect Asian Powerhouse's Economy?

By Luis Fran , Oct 14, 2016 03:30 PM EDT
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The Bank of Korea (BOK) explained on Thursday its worries about Samsung Electronics Co.´s smartphone crisis, asserting the fact that Galaxy Note 7 debacle will cost the company $5.3 billion. While the tech giant can easily bounce back from the financial loss, the controversy could be very harmful to the economy and the foreign exchange market.

A Serious Problem For South Korea Economy

This multi-billion dollar earnings hit from lost sales has already started to affect the Korean Won going down 1.5 percent, turning it into the worst performing currency in Asia this week. In addition to this problem, investors and analysts have predicted lost revenue in the region of $17 billion for Samsung, as reported by Reuters.

However, Samsung affirmed that the real hit to its operating profit might be about $3 billion over the next two quarters, bringing about $5.3 billion of total losses to the global tech giant. In order to cover these losses, the company will boost the production for the Galaxy S7 and S7 Edge, and could make an earlier release for the Galaxy S8, according to the International Business Times.

Samsung's Ratings Might Not Be Affected

Although this is a delicate situation that represents a serious hit to Asia´s fourth-largest economy, Bank of Korea Governor Lee Ju-Jeol explained that even if the cancellation of the Galaxy Note 7 is an undeniable issue for the South Korean economy, it is too soon to make sweeping predictions. Also, an analysis made by Standard & Poor´s Global Rating showed that Samsung rating might not be affected.

"We believe the impact on the ratings will be limited at this stage mainly because of SEC's significant net cash holdings of about $58.3 bn as of June 30, 2016, and strong operating cash flow," Standard & Poor´s Global Rating members told the IBT.

The global smartphone maker announced in early September the cancellation of 2.5 million Galaxy 7, after it was known that the phones could burst into flames. According to Reuters, the consequence of this decision was a sales hit of $2.2 billion, considering that the cost of each device was $882.

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