Samsung Galaxy Note 7 production permanently ended following battery explosions

Samsung has confirmed that it is permanently stopping production of the Galaxy Note 7 smartphone after it was involved in dozens of fires and explosions worldwide.

In a regulatory filing in South Korea late on Tuesday, the firm said it had made the decision to stop production, for the sake of consumer safety.

A day earlier Samsung said it was “adjusting production”, an admission that many saw as the first steps towards killing the phone entirely.

It said in a statement: “Putting consumer safety as the top priority, we have reached a final decision to halt production of Galaxy Note 7s.” A spokesperson confirmed that the suspension was “permanent”.

The move comes after the flagship smartphone, which the company hoped would put it give it an advantage over iPhone-maker Apple, was plagued by batteries catching fire and exploding. Attempts to rectify the problem by recalling a replacing faulty batches were undermined when replacement phones also started malfunctioning.

Samsung said customers will be able to apply for a full refund or to swap their Note 7s for other Samsung products. It also advised all customers with an original or replacement Galaxy Note 7 to “power down and stop using the device” immediately.

In discontinuing the phone, Samsung follows the advice of many analysts who saw it as a lost cause, and who argued that the company’s priority should be protecting the rest of its brand.

“If it’s once, it could be taken as a mistake. But for Samsung, the same thing happened twice with the same model so there’s going to be a considerable loss of consumer faith,” said Greg Roh at HMC Investment Securities.

“The reason consumers prefer brands like Samsung and Apple is because of product reliability … so in this case brand damage is inevitable and it will be costly for Samsung to turn that around again,” Roh said.

The company will struggle to keep premium customers from switching to other manufacturers such as Google, which released its own Pixel XL phone this month as a direct competitor to the Note 7. Edison Investment Research said: “As a result of making a complete mess of the Galaxy Note 7 recall, Samsung is more likely to lose a large number of high end users to other Android handsets rather than to Apple.”

download-24Richard Windsor, an analyst with Edison, added: “As long as Samsung carried out the recall smoothly and kept users very happy, the issue would eventually blow over. Unfortunately, this is very far from the case and the fact that Samsung appeared to still be shipping defective devices could trigger a large loss of faith in Samsung products.

“It also ensures that when there are problems with its other products they will be brought into laser focus by the media. The net result is that Galaxy Note 7 owners are now likely to end up with devices from other manufacturers.”

The phone initially launched to rave reviews, with critics praising its waterproofing, curved screen, high-quality cameras and fast charging. It appeared to be a success for Samsung, which had deliberately pursued a strategy of rapid innovation to capitalise on the expected release of the “dull” iPhone 7.

But shortly after its release on 19 August, reports began to surface of fully charged Note 7 phones smouldering, catching fire, and even exploding. The company announced that it was suspending sales of the phone on 2 September, which prevented most devices hitting Europe – a secondary market for phablet-sized phones after the US and Asia. It also offered a voluntary replacement programme for users with affected Note 7s, which it estimated covered 70% of the phones it had produced.

That “voluntary replacement programme” led to a rap on the knuckles from the US consumer watchdog on 9 September, which argued that Samsung should instead have issued an official recall – which it started a few days later. The company might have hoped this would be the end of the matter, but replacement devices began to exhibit the same problems.

On 1 October, Samsung resumed sales of the phone in South Korea and replacements were continuing in the US. Five days later came a report of a replacement Note 7 starting to smoulder on a US flight.

By the time Samsung announced a hiatus to production there were eight reported cases of supposedly safe replacement Note 7s catching fire.

According to the Associated Press, South Korea’s safety agency is still investigating why the replacement phones have been exploding, and an official said the replacement phones may have a different defect to the problem with the original Note 7s.

Neil Campling, Head of Global TMT Research for Northern Trust Capital Markets, estimated the total financial cost of the affair as potentially higher than $2bn, but added that the reputational damage could be greater still.

The affair has not been as damaging for Samsung’s stock price as might have been expected, however. The company’s shares hit a low in mid-September, after news of the recall broke, but proceeded to rally to an all-time high in early October.

After confirmation of multiple faulty replacement devices came in over the weekend, however, the stock has dropped almost 10% in the past two days, to 1,554,000 won. The news of halted production came too late to be reflected in Tuesday’s trading in South Korea.

Karissa Chua, an analyst with Euromonitor International, said: “This setback will cast doubts on whether Samsung can sustain its stellar results in its mobile business over the next two to three quarters. In terms of financial losses due to the product recall, it will be greater in the US where Samsung is also plagued with potential lawsuits in the US and claims over damage to property and medical bills.

“The biggest challenge for Samsung would be to prevent the consumer and investor fallout from worsening,” Chua added. “The fact that its premium Note 7 smartphone is labelled a safety hazard is damaging to Samsung Corp and its affiliate Samsung SDI’s reputation. It could also have repercussions on consumers’ overall confidence in Samsung smartphones if the company does not take steps to assuage consumers’ concerns over its devices, particularly with the new Note 7 replacements.”

 

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Samsung Galaxy Note 7 production permanently ended following battery explosions

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