Samsung Offsetting Recall Costs By Selling Stakes In Other Tech Companies

Stung by costs associated with the recall of its Galaxy Note 7 smartphone, South Korean tech giant and world's largest chip-maker Samsung (SAMSUNG ELECTRONIC KRW5000 SSNLF) is out to make good of the loses through other avenues.

Smart Jolt

Earlier this month, the company announced voluntary recall of its flagship Galaxy Note 7 smartphone, citing potential explosion risks associated with the batteries. The number of phones to be recalled is an estimated 2.5 million. The recall is expected to burn a deep hole in the company's pocket, as it would be forced to shell out over $1 billion in costs. The company's shares have taken a hit following the recall.

Liquidation: Cure For Ailment?

To meet the one-off expenses without the bottom line taking a hit, Samsung announced that it would sell stake in four different companies. These companies include disk-drive maker Seagate Technology PLC STX, Rambus Inc. RMBS, ASML Holding NV (ADR) ASML and Japanese electronics company Sharp Corporation (ADR) SHCAY.

Related Link: Samsung Hoped To Take Advantage Of "Dull" iPhone; Plans Literally Backfired

While it liquidated its entire stakes in Seagate, Rambus and Sharp, it has sold one-half of its 2.9 percent stake in ASML.

Will The Move Help?

In its recent second quarter, Samsung reported strong operating profit growth, propelled by strong sales of smartphone. Now with the product itself under threat, it remains to be seen whether the company can circumvent the weakness.

Way Forward?

A Wall Street Journal report showed that apart from the stock's malaise, the company's dominance in the smartphone market is facing threat from cheap models released by Chinese and Indian upstarts. This is notwithstanding the competitive threat posed by the iPhone 7 and 7S versions recently released by the arguably technological superior Apple Inc. AAPL. The report also highlighted the company's foray into other markets, including the lucrative biopharmaceuticals.

It remains to be seen if the stake sale gamble will help the behemoth tide over trying times.

Full ratings data available on Benzinga Pro.