Samsung Electronics scrapped its Galaxy Note 7 smartphone, less than two months after its launch, and a day after it halted global sales of the star-crossed device, dealing a huge blow to its reputation and outlook after failing to resolve safety concerns.
The South Korean company said in a regulatory filing Tuesday that it has made a final decision to stop production of the large-screen smartphone whose exploding batteries had become a recurring global problem, and which was supposed to compete with Apple's iPhones and other high-end smartphones during the U.S. holiday shopping season, for the sake of consumer safety.
"(We) have decided to halt production and sales of the Galaxy Note 7 in order to consider our consumers' safety first and foremost," the South Korean firm said in a filing to the Seoul stock exchange.
The announcement came after consumers reported problems with supposedly safe phones in the U.S. and China, and wireless carriers such as AT&T Inc. and Australia’s Telstra Corp. halted sales. In one case, a Southwest Airlines Co. flight from Louisville, Kentucky, was evacuated because a replacement Note 7 began dispersing smoke and burned carpet flooring.
South Korean media reported Monday that Samsung's factories stopped making the fire-prone phones but Samsung insisted it was making production adjustments to improve inspections and quality control.
Samsung has been struggling to regain consumer trust after a first round of recalls. The company stopped selling the device after finding that even the supposedly safer replacements it was providing for recalled Note 7 phones were catching fire. “Samsung needs to act swiftly and move on to protect their brand image,” said Mark Newman, an analyst with Sanford C. Bernstein in Hong Kong.
Samsung shares had fallen 9% Tuesday, wiping out almost $20 billion of market value, as the Samsung supply-chain get whacked. According to Bloomberg calculations, Samsung Electronics’ and its partmakers’ operating profit could fall by 1.5t-2t won ($1.3b-$1.8b) after the halt on Note 7 sales. Samsung may lose 1.1t-1.3t in operating profit, while Note 7 issue will have a “significant” impact on markets as Samsung and its supply chain constitutes about a third of South Korea’s market cap.
As Bloomberg adds, the company originally introduced the Note 7 in August and then recalled the initial shipment of 2.5 million phones after a spate of battery fires. It is now investigating incidents with replacement devices that it had thought were safe. Meanwhile, all of the above is great news for Apple, which has seen at least one key competing product drop out of the holiday market.