South Korean electronics company to kill off its flagship smartphone after failing to fix problems with batteries catching fire
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 attained the decision to stop production, to the purposes of customer safety.
A day earlier Samsung said it was adjusting production, an admission that many assured as the first steps towards killing the phone entirely.
It said in a statement: Putting customer security as the top priority, we have reached a final decision to halt production of Galaxy Note 7s. A spokesman confirmed that the suspension was permanent.
The move comes after the flagship smartphone, which the company wish i could set it dedicate it an advantage over iPhone-maker Apple, was beset by batteries catching fire and exploding. Tries to rectify the problem by recollecting a replacing faulty batches were undermined when replacing phones also started malfunctioning.
Samsung said customers will be able to apply for a full rebate 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 relevant recommendations of many analysts who considered it as a lost cause, and who argued that the companys priority should be protecting the rest of its brand.
If its once, it could be taken as a mistake. But for Samsung, the same thing happened twice with the same model so theres going to be a considerable loss of consumer religion, said Greg Roh at HMC Investment Securities.
The reason customers opt brands like Samsung and Apple is because of product reliability so in this case brand injury is inevitable and it will be costly for Samsung to turn that around again, Roh said.
The company will struggle to keep premium clients from switching to other manufacturers such as Google, which released its own Pixel XL phone this month as a direct challenger to the Note 7. Edison Investment Research said: As a result of making a complete mess of the Galaxy Note 7 remember, Samsung is more likely to lose a large number of high end users to other Android handsets rather than to Apple.
Richard Windsor, an analyst with Edison, added: As long as Samsung carried out the remember smoothly and maintained users very happy, the issue would eventually blow over. Unfortunately, this is very far from the lawsuit and the fact that Samsung appeared to still be shipping defective devices could trigger a large loss of religion 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 outcome is that Galaxy Note 7 proprietors 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 intentionally pursued a strategy of rapid invention 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 telephones smouldering, catching fire, and even exploding. The company announced that it was suspending marketings of the phone on 2 September, which prevented most devices hitting Europe a secondary marketplace for phablet-sized telephones after the US and Asia. It also offered a voluntary replacement programme for users with affected Note 7s, which it calculated covered 70% of the phones it had produced.
That voluntary replacement program led to a rap on the knuckles from the US customer watchdog on 9 September, which argued that Samsung should instead have issued an official remember which it started a few weeks later. The company might have hoped this would be the end of the issues, but replacement devices began to exhibit the same problems.
On 1 October, Samsung resumed sale 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 Koreas safety agency is still investigating why the replacement phones have been explosion, 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 Samsungs stock price as might have been expected, however. The companys shares reached a low in mid-September, after news of the recall transgressed, 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 fallen almost 10% in the past two days, to 1,554, 000 won. The news of halted production came too late be included in Tuesdays 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 one-quarters. In words of financial losses due to the product recall, it will be greater in the US where Samsung is also plagued with potential suits 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 worsen, Chua added. The fact that its premium Note 7 smartphone is labelled a safety hazard is damaging to Samsung Corp and its affiliate Samsung SDIs reputation. It has the potential to have repercussions on consumers overall confidence in Samsung smartphones if the company does not take steps to assuage customers fears over its devices, particularly with the new Note 7 replacements.
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