Samsung co-chief Shin issues apology as Q3 profit slumps 30% after Note 7 debacle

Visitors Experience and operation Samsung Galaxy S7 Edge at the KES2016 (Korea Electronics Grand Fair) in Seoul, South Korea.
Seung-il Ryu | NurPhoto | Getty Images

The co-chief executive of Samsung Electronics issued an apology on Thursday after third-quarter operating profit tumbled more than 30 percent following the scandal linked to the now-recalled Galaxy Note 7.

Samsung posted an operating profit of 5.2 trillion won ($4.5 billion), in line with revised estimates given by the company earlier this month.

Pre-tax profit was down more than 19 percent at 5.97 trillion won in the July-September quarter, while net profit dropped almost 17 percent to 4.54 trillion won.

The company said increased sales of high-end products in its components business that makes memory chips and display panels helped to offset a sharp decline in its mobile business, which was hammered by the botched recall of its Note 7 device.

Following the earnings release, Samsung's co-chief executive, J.K. Shin apologized for the Note 7 debacle at a shareholders' meeting in Seoul, Reuters reported, adding he told shareholders the company would work hard to regain their trust.

In a regulatory filing, the South Korean tech giant said operating profits for the semiconductor business came in at 3.37 trillion won, helped by strong demand for memory chips.

The display panel business posted operating profits of 1.02 trillion won, boosted by increased earnings for OLED panels — which are used for displays on devices — and increased shipments of large-sized LCD TV panels. Samsung said it expects earnings from the components business to improve further in the October-December quarter.

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The IT and mobile communication division took a sharp profit hit due to a massive recall and eventual discontinuation of its latest Note 7 smartphones, following reports of the devices catching fire. Operating profit for the business came in at 100 billion won, a 96 percent on-year decline.

The latest numbers showed Samsung was not "a one-trick pony", Patrick Moorhead, president and principal analyst at Moor Insights & Strategy, told CNBC's "Squawk Box."

"They are a major portfolio player not only in smartphones but also across components and displays [and] that is exactly what we're seeing today," he said.

Future guidance and expectations for the S8

Samsung said it expected demand for smartphones and tablets to increase in the fourth quarter and aimed to achieve mobile business operating profits at levels similar to the 2.23 trillion won seen in the same period a year earlier.

The world's largest smartphone maker by shipment volume previously warned it estimated a further $3.5 billion profit hit between the fourth quarter of 2016 and first quarter of calendar year 2017.

Moorhead said the untimely demise of the Note 7 would not hinder Samsung's holiday season sales because it contributed only a small percentage of overall volume. "I think what people forget is just how small of a percent [the Note 7 sales] is and that's why we are not going to see the big hit in the fourth quarter," he said.

The majority of Samsung's handset sales come from its flagship Galaxy S7 and S7 edge handsets, as well as from its mid-tier Galaxy A and J series.

The earnings provided no insight into the next flagship Galaxy S8 phone which is expected to launch in the January-March quarter in 2017 and could help Samsung put all of the negativity around the Note 7 behind.

Mehdi Hosseini, a senior analyst at Susquehanna Financial Group, told CNBC's "The Rundown" he expected Samsung to focus on adding new display features on the S8 and eventually pave the way for the introduction of foldable display screens by the second half of 2017.

"The next generation of smartphones are going to have differentiation focus on display," he said.

Lack of clarity on Note 7 a growing concern

Even with new features added, regaining consumer confidence could be an uphill task for Samsung the longer it keeps mum on what happened with the Note 7, according to Moorhead.

"We still don't know what has happened yet with the Note 7 [and] why it happened and what plans are they putting in pace to get through that?" he said.

Samsung previously said it was still investigating what was causing the handsets to overheat.

On Thursday, according to a Reuters report, Samsung said it would make significant changes to its quality assurance processes and later added it was expanding its investigations beyond batteries.

Meanwhile at a general meeting held on Thursday, shareholders approved the appointment of vice chairman Jay Y. Lee, who is expected to succeed his father Lee Kun-hee as chairman of the Samsung Group, onto the board of directors, Reuters reported.

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