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Note 7 debacle ripples through the industry -4

12:49 11-Oct-16


The Note 7 debacle may affect not only Samsung but its suppliers. For those who haven't recognized how unprecedented this issue is, there have been injuries and even home loss associated with the device.  Samsung's permanent discontinuation and global recall of the phablet could cost the company $17b. Samsung can handle that, but it's almost three years worth of profits, even in the good years.

Of the companies I cover (besides UDC, which I've already commented on) Integrated Device Technology is probably the most affected.  Thus, though the stock has been down as much as 5% today, I remain cautious going into earnings.  MagnaChip could also be affected, though probably less immediately.  I still see both stocks as good long-term businesses, and think MX, in particular has yet to realize its full upside.  However, given the scale of the issue, it's probably best to wait and hear from managements about the actual impact in each case.

On a broader level, Samsung has confirmed that its plant in Vietnam, where it just ramped production over the past couple of years, is involved in Note 7 production.  I have to wonder if that's related, and note that LG has made similar, though more recent, moves and plans.  Each company has its own processes and procedures, but if the problem turns out to be related to available resources for developing them, that could push manufacturing back towards China. Shifts like that take months, if not years, to play out. Caution is warranted in the meantime.