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Samsung Takes $10 Billion Hit to End Galaxy Note 7

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  • Samsung Takes $10 Billion Hit to End Galaxy Note 7

Samsung has killed off the Galaxy Note 7 in the hope of limiting the fallout from its exploding smartphone fiasco.

The South Korean firm decided Tuesday to permanently halt sales and production of the Galaxy Note 7 just hours after telling customers to stop using all versions of the smartphone. Its stock plummeted 8% in Seoul, wiping about $17 billion off the company’s market value.

The high-end phone was supposed to do battle with Apple’s (AAPL, Tech30) iPhone 7, but instead ended up doing serious damage to Samsung’s reputation.

Analysts say Samsung’s (SSNLF) move to ditch the Note 7 entirely would be costly — it could put a $9.5 billion dent in sales and erase $5 billion in profits, according to one estimate. But the risk of prolonging the agony was worse.

“It’s a painful move but perhaps not an entirely bad one in the grand scheme of things, as it helps isolate and contain the bad perception to that specific product rather than spreading fear that all Samsung phones might explode,” said Bryan Ma, vice president of device research at IDC.

The credibility of the world’s biggest smartphone maker was on the line after a series of missteps.

It was forced to recall about 2.5 million Note 7s in early September, just two weeks after the phone was launched, saying faulty batteries were causing some to burst into flames. It then started to issue replacement phones but a number of customers reported that those devices were also catching fire, including one aboard a passenger jet.

Samsung is now scrambling to limit the damage from one of the biggest smartphone recalls ever.

Identify the problem

Top priority will be to establish what exactly went wrong. The company initially blamed problems with a battery from one supplier. Experts say they believe a design flaw may have been responsible.

“The discontinuation signals that the root of the problems does not lie in the production errors, but possibly in the product design,” said TuanAnh Nguyen, a research analyst at Canalys.

Mark Newman, a Bernstein analyst who covers Samsung, said the battery explanation did not add up.

“There appears to be something else at play,” he said.

Come clean quickly

Once it’s figured out the root cause, Samsung needs to be upfront with its customers. Otherwise the failure of the Note 7 could hurt sales of other Samsung phones and products.

“Users are scared to use Samsung at all,” Ma said. “Samsung said they fixed it, but the problems keep happening.”

Unless that impression can be corrected fast, the release of its next Galaxy S series model, which is expected early next year, could be tarnished.

“Honesty and transparency is needed to repair the damage to its brand image,” said Nguyen. “Failure to do so will create long lasting repercussions on its other product lines,” he added, suggesting the company may even have to drop the Note branding altogether.

Provide compensation

Samsung told customers in South Korea on Tuesday that they will be able to exchange their Note 7 for another smartphone. The exchange program will begin on Thursday and run through the end of the year.

It was not immediately clear what customers in other markets could expect in terms of a replacement or compensation. Analysts say as many as two million devices may still be in use around the world.

Analysts at Nomura estimate ditching the Note 7 could mean $9.5 billion in lost sales and wipe out $5.1 billion of profit.

But Samsung, which has a market value of about $194 billion and annual sales of $179 billion, should be big and profitable enough to weather the loss of one model.

“The majority of Samsung’s profits are now generated outside of phones, predominantly from their strong component divisions,” Newman said. “And within the handset division, the Note line is not the main driver of profit.”

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Crude Oil

Oil Prices Continue to Slide: Drops Over 1% Amid Surging U.S. Stockpiles

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Amidst growing concerns over surging U.S. stockpiles and indications of static output policies from major oil-producing nations, oil prices declined for a second consecutive day by 1% on Wednesday.

Brent crude oil, against which the Nigerian oil price is measured, shed 97 cents or 1.12% to $85.28 per barrel.

Similarly, U.S. West Texas Intermediate (WTI) crude slumped by 93 cents or a 1.14% fall to close at $80.69.

The recent downtrend in oil prices comes after they reached their highest level since October last week.

However, ongoing concerns regarding burgeoning U.S. crude inventories and uncertainties surrounding potential inaction by the OPEC+ group in their forthcoming technical meeting have exacerbated the downward momentum.

Market analysts attribute the decline to expectations of minimal adjustments to oil output policies by the Organization of the Petroleum Exporting Countries (OPEC) and its allies, known collectively as OPEC+, until a full ministerial meeting scheduled for June.

In addition to concerns about excess supply, the market’s attention is also focused on the impending release of official government data on U.S. crude inventories, scheduled for Wednesday at 10:30 a.m. EDT (1430 GMT).

Analysts are keenly observing OPEC members for any signals of deviation from their production quotas, suggesting further volatility may lie ahead in the oil market.

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Energy

Nigeria Targets $5bn Investments in Oil and Gas Sector, Says Government

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Crude Oil - Investors King

Nigeria is setting its sights on attracting $5 billion worth of investments in its oil and gas sector, according to statements made by government officials during an oil and gas sector retreat in Abuja.

During the retreat organized by the Federal Ministry of Petroleum Resources, Minister of State for Petroleum Resources (Oil), Heineken Lokpobiri, explained the importance of ramping up crude oil production and creating an environment conducive to attracting investments.

He highlighted the need to work closely with agencies like the Nigerian National Petroleum Company Limited (NNPCL) to achieve these goals.

Lokpobiri acknowledged the challenges posed by issues such as insecurity and pipeline vandalism but expressed confidence in the government’s ability to tackle them effectively.

He stressed the necessity of a globally competitive regulatory framework to encourage investment in the sector.

The minister’s remarks were echoed by Mele Kyari, the Group Chief Executive Officer of NNPCL, who spoke at the 2024 Strategic Women in Energy, Oil, and Gas Leadership Summit.

Kyari stressed the critical role of energy in driving economic growth and development and explained that Nigeria still faces challenges in providing stable electricity to its citizens.

Kyari outlined NNPCL’s vision for the future, which includes increasing crude oil production, expanding refining capacity, and growing the company’s retail network.

He highlighted the importance of leveraging Nigeria’s vast gas resources and optimizing dividend payouts to shareholders.

Overall, the government’s commitment to attracting $5 billion in investments reflects its determination to revitalize the oil and gas sector and drive economic growth in Nigeria.

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Commodities

Palm Oil Rebounds on Upbeat Malaysian Exports Amid Indonesian Supply Concerns

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Palm oil prices rebounded from a two-day decline on reports that Malaysian exports will be robust this month despite concerns over potential supply disruptions from Indonesia, the world’s largest palm oil exporter.

The market saw a significant surge as Malaysian export figures for the current month painted a promising picture.

Senior trader David Ng from IcebergX Sdn. in Kuala Lumpur attributed the morning’s gains to Malaysia’s strong export performance, with shipments climbing by a notable 14% during March 1-25 compared to the previous month.

Increased demand from key regions like Africa, India, and the Middle East contributed to this impressive growth, as reported by Intertek Testing Services.

However, amidst this positivity, investors are closely monitoring developments in Indonesia. The Indonesian government’s contemplation of revising its domestic market obligation policy, potentially linking it to production rather than exports, has stirred market concerns.

Edy Priyono, a deputy at the presidential staff office in Jakarta, indicated that this proposed shift aims to mitigate vulnerability to fluctuations in export demand.

Yet, it could potentially constrain supply availability from Indonesia in the future to stabilize domestic prices.

This uncertainty surrounding Indonesian policies has added a layer of complexity to palm oil market dynamics, prompting investors to react cautiously despite Malaysia’s promising export performance.

The prospect of Indonesian supply disruptions underscores the delicacy of global palm oil supply chains and their susceptibility to geopolitical and regulatory factors.

As the market navigates these developments, stakeholders remain attentive to both export data from Malaysia and policy shifts in Indonesia, recognizing their significant impact on palm oil prices and market stability.

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