Samsung Scion Joins Board As Q3 Profit Tanks 17% On Note 7 Debacle

Seoul: Samsung heir apparent Lee Jae-Yong took a major step towards control of the family-run conglomerate on Thursday, joining the board as the company reported a 16.8 percent drop in net profit following a highly damaging recall crisis. The move is being seen as a coronation of sorts of the 48-year-old Lee, who is already Vice- Chairman of Samsung Electronics and has seen his influence grow since his father, Samsung patriarch Lee Kun-hee, suffered a heart attack and was hospitalized in 2014.

The South Korean tech giant Samsung Electronics’ net profits in the third quarter dropped by a massive 16.8 per cent, primarily due to the Galaxy Note 7 discontinuation, the company announced on Thursday as the shareholders approved the nomination of Vice Chairman Lee Jae-yong to the electronics giant’s board of directors.

The South Korean tech giant Samsung Electronics' net profits in the third quarter dropped by a massive 16.8 per cent, primarily due to the Galaxy Note 7 discontinuation, the company announced on Thursday as the shareholders approved the nomination of Vice Chairman Lee Jae-yong to the electronics giant's board of directors.

Board chairman Kwon Oh-Hyun said Lee's elevation would give him a greater say in decision-making at the highest level and help foster long-term, sustainable value for Samsung shareholders. The nomination was approved by an extraordinary shareholder meeting, which also focused on the recall fiasco surrounding the flagship Galaxy Note 7 handset that has hammered the reputation of the world's largest smartphone maker.

"We can now say that Lee's regime has officially begun," said Lee Chaiwon, chief investment officer at Korea Value Asset Management Co. "I think a new era is coming. The company will become more market-friendly," Lee told Bloomberg News.

The slump was in line with a revised earning estimate two weeks earlier after it killed off the Note 7 due to devices overheating and bursting into flames. The decision to discontinue production of a model aimed at competing with arch-rival Apple’s iPhone was a devastating move for the company, which prides itself on the quality production of cutting-edge technology.

Samsung's share price rose more than two per cent in morning trade, but then fell back to close up 0.4 per cent at 1.57 million won. The shareholder meeting began just hours after Samsung announced a third-quarter operating profit of 5.2 trillion won ($4.6 billion) -- down from 7.3 trillion won a year ago.

The slump was in line with a revised earning estimate two weeks earlier after it killed off the Note 7 due to devices overheating and bursting into flames. The decision to discontinue production of a model aimed at competing with arch-rival Apple's iPhone was a devastating move for the company, which prides itself on the quality production of cutting-edge technology.

Scrapping the Note 7 saw earnings of the core mobile business drop off a cliff, with the mobile division's operating profit for the third quarter down almost 98 per cent on-quarter at just 100 billion won.

Co-chief executive JK Shin apologised to shareholders and said it was unacceptable that the company failed to meet its own quality assurance standards. Samsung Electronics will revisit and re-examine every step of our engineering, manufacturing and quality control processes,

According to Yonhap news agency, top market cap Samsung Electronics rose 0.38 percent to end at 1,573,000 won after the nomination news, signalling that the only son of the ailing Chairman Lee Kun-hee will more actively participate and take formal responsibility in the company's important decision-making.

Earlier in the day, the company announced that operating profit dropped 29.7 per cent from a year earlier to 5.2 trillion won ($4.6 billion) in the July-September quarter. From three months ago, the profit tumbled 36.2 per cent.

It marked the lowest in two years, meeting the revised estimate by Samsung which slashed its preliminary forecast by 2.6 trillion won to reflect costs from the discontinuation of its fire-prone smartphone.

"We know we must work hard to earn back your trust and we are committed to doing just that," co-chief executive JK Shin was quoted as saying in media reports after the results were announced.

Scores of reports about Note 7 phones heating up and catching fire led Samsung to terminate its latest flagship model. Hundreds of owners of the device here have sued Samsung for inconvenience they experienced in the recall and termination process.

Revenues Drop By 7.5%

The company's revenue declined 7.5 per cent over the year to 47.82 trillion won in the September quarter, the lowest since the first quarter of last year. From the previous quarter, the revenue was down 6.1 per cent. Net income dropped to 4.54 trillion won in the third quarter from 5.46 trillion won a year earlier. From three months ago, the net income plunged 22.4 per cent.

However, the Consumer Electronics Division achieved solid earnings growth driven by strong sales of SUHD TVs and premium home appliances.