Samsung Galaxy Note 7 nightmare slashes company's profits by £2 billion

Flaming smartphones fiasco has already wiped billions off tech giant's value - now earnings forecast cut by a third.

Samsung acted quickly to recall the phones after reports of them catching fire, but will the company survive the PR disaster? (Reuters)

Samsung said on Wednesday its profits would slump by 33 per cent in the third quarter, as the Galaxy Note 7 disaster hit the company’s bottom line for the first time.

The company lowered its operating profit estimate for the three months to 30 September to 5.2 trillion Korean won (£3.77 billion) from its earlier estimate of 7.8 trillion won (£5.7 billion). It said sales would also fall to 47 trillion won from the 49 trillion won it guided for last week.

The revisions were made in order to “comply with regulatory requirements”, according to the filing. The company faces up to $5 billion in costs associated with the recall as well as unquantifiable damage to its reputation.

The disaster has wiped 14 per cent off the value of the company’s shares and analysts warn that more may be to follow. Samsung’s brand value, calculated as (£52 billion) just a week ago is under severe threat.

“The development is disastrous for the company’s short-term financial position and its short-term brand value,” aid Robert Haigh, director at consultancy firm, Brand Finance.

The news comes as Samsung said it is now sending fire-resistant packages to its customers in the US as a precaution against possible fires or explosions from Galaxy Note 7s they return to retailers.

Samsung said on Wednesday that it is offering prepaid shipping boxes which have a tendancy to catch fire. The company has recalled all the phones and said Tuesday it was permanantly ceasing production of the devices.

Samsung said packaging meets U.S. regulations required for shipping lithium-ion batteries or devices containing them.

A video on YouTube dated Tuesday shows a man it says is at the XDA Developers office in the US, unpacking a kit containing a static shield bag, thermally insulated box, gloves and instructions for ground shipping only.