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SEOUL—Samsung Electronics Co. wants to move on from the Galaxy Note 7. Doing so may not be easy.

Two weeks after scrapping its fire-prone smartphone, the company on Thursday revealed a big hit to its bottom line, pledged a "thorough" and "open" investigation into the phone's problems and elevated third-generation heir apparent Lee Jae-yong to his first board seat.

But problems remain for Samsung: It won't have a new flagship smartphone to sell until its Galaxy S8 launches in four months' time; executives appear to be no closer to identifying the source of the overheating problem plaguing its ill-fated Note 7; and the company doesn't know how much the recall has undermined faith in its products.

Samsung, which on Thursday reported a 96% plunge in quarterly operating profit in its mobile division after discontinuing the Note 7, finds itself without a buzzworthy product at a time when profit margins and mobile sales are under pressure.

With its Note 7 out of commission after a two-month-long debacle that has cost it more than $5 billion in recall expenses and lost sales, Samsung will have to get through the holiday shopping season with the Galaxy S7, a device that has been on shelves since March this year.

Samsung executives acknowledged their predicament in a conference call with analysts on Thursday. "We are expecting some difficulties until the first quarter of 2017, but we will achieve a business turnaround with the release of our new flagship smartphone," said Lee Kyeong-tae, Samsung's vice president for mobile communications.

Samsung will be seeking to squeeze some extra life out of the S7 at a time when sales growth for high-end players like Samsung and its rival Apple Inc. is anemic. In the third quarter, Samsung shipped about 75.3 million smartphones, according to research firm Strategy Analytics, a 10% decline from a year earlier, thanks largely to the recall.

Lee Seung-woo, an analyst at IBK Securities in Seoul, said that smartphone sales generally taper off sharply after the first three to four months on the market—for Samsung, often by about 50%. Apple's iPhones, in contrast, tend to enjoy longer lifespans.

But even Apple is struggling. On Tuesday, the Cupertino, Calif.-based company reported its first year-over-year revenue decline in 15 years as it struggled to maintain demand for its iPhones, and offered an outlook for the holiday quarter that disappointed investors.

Meantime, Alphabet Inc.'s Google unit released its first Pixel smartphone earlier this month to positive reviews. Next week, fast-rising Chinese rival Huawei Technologies Co., is set to release a new flagship device of its own.

Samsung's Mr. Lee said that the next version of its best-selling Galaxy S series smartphone, the S8, would feature slick design and an improved camera, as well as an enhanced artificial-intelligence service. Earlier this month, Samsung acquired U.S. startup Viv Labs, whose co-founders had previously created Apple's Siri virtual assistant service. Mr. Lee declined to comment on whether Samsung was planning to include Viv technology in the Galaxy S8.

The company is still grappling with the question of what tripped up the Note 7 in the first place -- a key unknown as Samsung seeks to prevent the same problems from cropping up in the S8.

At a shareholder meeting on Thursday, J.K. Shin, a Samsung co-chief executive, told shareholders that the company was working with regulators and independent experts to study "every aspect of the device, such as its hardware, software and manufacturing processes."

The company had identified Note 7 smartphones whose overheating problems likely go beyond battery issues, he said. The remarks were the first time Samsung has mentioned potentially broader causes, and suggested it was widening, not narrowing, its investigation.

Mr. Shin said that the probe would take time, without commenting further. He pledged to share the findings "in an open manner."

Despite the challenges, Samsung executives say that the Galaxy S7 is on track to be its best-selling device ever, and has continued to sell strongly even amid the Note 7's well-publicized issues.

Executives told investors that they expect mobile earnings for the last three months of the year to top those of the same period last year, due to the strength of the S7.

Samsung's net profit fell 16.8% to 4.54 trillion Korean won ($4.0 billion) for the three months ended Sept. 30. Overall operating profit fell 30% from a year earlier to 5.2 trillion won, while revenue fell 7.5% to 47.82 trillion won.

The company expects to take an additional hit of about 3.5 trillion won from the Note 7 situation in the last three months of 2016 and the first three months of next year.

Separately on Thursday, Samsung promoted Mr. Lee, the company's third-generation scion, to its board of directors, elevating him to his most public role yet at the technology giant. Mr. Lee wasn't present at the extraordinary general meeting—Samsung's first since 1988—to the disappointment of small shareholders who attended the meeting to catch a glimpse of him.

Other investors showed up to express disappointment at Samsung over the Note 7.

"The Note 7 issue isn't just about costs," said Park In-gyo, one shareholder who stood up to speak. "It's about the impact it has on Samsung's brand that took years to build."

Write to Jonathan Cheng at jonathan.cheng@wsj.com and Eun-Young Jeong at Eun-Young.Jeong@wsj.com

(END) Dow Jones Newswires

October 27, 2016 08:05 ET (12:05 GMT)

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