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Could the Samsung Crisis Affect South Korea’s National Economy?

After some South Korean government and central bank officials voiced concerns about the potential impact of the Note 7 crisis on the domestic economy, Samsung said on Tuesday it will compensate component suppliers for the discontinued Galaxy Note 7 smartphones and consider giving them orders for other models to cushion the blow.

Signage is seen at the Samsung 837 store in the Meatpacking District of Manhattan, New York, U.S.
Signage is seen at the Samsung 837 store in the Meatpacking District of Manhattan, New York, U.S., October 10, 2016. REUTERS/Andrew Kelly

The world's top smartphone maker said it would fully pay for unused Note 7 parts that have already been manufactured, compensate suppliers for unfinished components and pay for materials bought to make Note 7 parts.

"Samsung will determine the inventory levels for the partner companies and carry out compensation quickly," the company said in a statement, without elaborating on how much it expected to pay.

A deputy finance minister said the fallout could hurt the economy during the third and fourth quarters of the year. Though most of Samsung's smartphones are manufactured overseas, the company is a key customer for many South Korean parts makers including Samsung Electronics affiliate Samsung Electro-Mechanics Co Ltd.

Samsung last week permanently ended sales of the fire-prone Galaxy Note 7 smartphone less than two months after launch, a decision the company expects will cost $5.5 billion in operating profit from the third quarter of 2016 to the first quarter of 2017.