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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.”

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

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Crude Oil

Oil Slips With Energy Prices in Europe Halts Record Rally

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Oil dipped toward $72 a barrel in New York after prices of energy commodities in Europe halted a record-breaking run.

West Texas Intermediate futures fell 0.6%, having reached the highest intraday level since early August on Wednesday. A rally in European gas and power prices to unprecedented levels was set to end as industries were starting to curb consumption. The surge in energy rates could temporarily boost diesel demand by as much as 2 million barrels a day as consumers switch fuels, according to Citigroup Inc.

Still, the bullish signals for oil are continuing to increase. U.S. crude inventories dropped by more than 6 million barrels last week to a two-year low, according to government figures, as coronavirus vaccination programs permit economies to reopen. Chevron Corp. Chief Executive Officer Mike Wirth warned that the world is facing high energy prices for the foreseeable future.

The investor optimism is showing up in key oil time spreads widening. Trading of bullish Brent options also surged to a two-month high on Wednesday.

Prices have been pushed higher in recent days “by supply outages combined with expectations of switching from gas to oil in the power sector,” said Helge Andre Martinsen, a senior oil market analyst at DNB Bank ASA. “We still believe in softer prices toward year-end and early next year as curtailed production returns and OPEC+ continues to increase production.”

Strong prices for gas, liquefied natural gas and oil are expected to last “for a while” as producers resist the urge to drill again, Chevron’s Wirth told Bloomberg News. Norway’s Equinor ASA said Thursday it also expects European gas prices to remain high over winter.

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Energy

Fuel Scarcity: Petrol Sells N220 Per Litre in Nsukka

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Premium Motor Spirit, otherwise called petrol, now sells for between N200 and N220 per liter at the independent marketers’ service stations in Nsukka, Enugu State.

The News Agency of Nigeria is reporting the hike in the price against the official pump price of N162 per liter.

It said it started about a fortnight ago due to the scarcity of the commodity in the town and its environs.

Some residents of the town expressed deep worry over the development in separate interviews with NAN on Wednesday.

A civil servant, Stephen Ozioko, said the situation had further compounded the economic difficulties in the area.

Ozioko said many private car owners had been compelled to park their vehicles at home and move around in public transport.

He said: “Since the scarcity started, I decided to park my car and take public transport to the office and back home. N220 per liter is exorbitant and I cannot afford it considering my salary as a civil servant. I shall continue to use public transport until the situation returns to normal.”

A building material dealer, Timothy Ngwu, said the development had also led to an increase in transport fare in the area.

Ngwu said: “Some people now trek from Nsukka Old Park to Odenigbo Roundabout because of the 100 percent hike in fares from N50 to N100 by tricycle.

“Before now, transport fare from Nsukka to Enugu was N500, but transporters now charge between N800 and N1000.”

Also, a commuter bus driver, Victor Ogbonna, described the scarcity and hike in the price of petrol as “unfortunate and an ugly development”.

Ogbonna added: “Today, only a few filling stations are selling the commodity in Nsukka town, while others are shut.”

He alleged that some filling stations, which claimed to be out-of-stock, were selling to black marketers at night.

He said: “This is why black marketers have sprung up everywhere in the town, selling the commodity for about N300 per liter.”

NAN reports that virtually all the major marketers in the area have stopped the sale of petrol, claiming to be out-of-stock.

The people called on the government to urgently intervene in order to bring the situation under control and also put an end to its harsh economic effects on the messes.

NAN.

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Energy

DPR Targets N3.2T Revenue by Year-End

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Nigeria’s Department of Petroleum Resources (DPR) will hit the N3.2 trillion revenue target by December 2021, according to its Director/ Chief Executive Officer, Mr Sarki Auwalu.

Auwalu made the disclosure when he led a delegation of the DPR management team to the Executive Secretary of Petroleum Technology Development Fund (PTDF), Mr Bello Gusau, in Abuja on Wednesday.

He said that 70 percent of the revenue projection had already been met. “Last year, we exceed our revenue budget. We were given N1.5 trillion but we were able to generate N2.7trillion.

“This year, our revenue budget was N3.2 trillion. By the end of August 2021, we have generated up to 70 per cent.

“So, we with September, October, November and December, it is only the 30 per cent that we will work over,’’ he said

He noted that the government took advantage of fiscal terms within the old and new legislation, thereby creating a level of increased signature bonuses.

“We reorganise the work programme that is normally being done in the DPR to key into the new operational structure as we see it in the bill, now an act.

“That programme is being handled by the planning and strategic business unit as against what we use to have because the entire work programme is supposed to show not only technical but also commercial and viability of oil fields and to guarantee the return on investment for investors.

“We have also created an economic value and benchmarking unit to key into the new fiscal provisions of the PIA,’’ he said.

Commenting on capacity, Auwalu said the country stands at the advantage of exporting skills to emerging oil and gas countries across Africa with proper implementation of the newly passed Petroleum Industry Act.

This, he said, the DPR was ready to partner with the Fund to continue to build capacity in the oil and gas sector

He noted that the Federal Government was determined to create leeway that would encourage investors and drastically improve the nation’s petroleum industry.

He further noted that no fewer than 300 legal battles in the oil and gas industry in Nigeria, which had been stalled for the past 20 years in courts, had been resolved through alternative dispute resolution.

According to Auwalu, the DPR is strategising well to ensure effective implementation of the PIA.

Responding, Gusau commended the DPR for enabling the industry and enhancing business activities in the oil and gas sector.

He said that DPR remained the head of the oil and gas industry in Nigeria adding that the Fund was grateful to benefit from the wealth of ideas from DPR.

“The last time we visited, we had a good discussion and issues raised are being implemented like tracking the inflow of funds in signature bonus accounts.

“We extended the meeting and involved ministry of Finance, Accountant General office and even the Central Bank of Nigeria (CBN).

“Sitting at field development plans and attending significant meetings, helped us to know where and what the industry is trying to do and it also helps to inform our decisions in training and capacity plans,’’ he said

He urged the DPR to continue on its effort to ensure an efficient and productive petroleum industry in Nigeria

He assured collaboration with all as the head of the implementation committee of the Petroleum Industry Act. (NAN)

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