Samsung recalls Galaxy Note 7 phones after battery fires

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Samsung Electronics Co Ltd (005930.KS) recalled all Galaxy Note 7 smartphones equipped with batteries it has found to be fire-prone and halted their sales in 10 markets, denting a revival of the firm’s mobile business.

Koh Dong-jin, head of the South Korean company’s smartphone business, expressed regret over the recall, which will affect markets including South Korea and the United States, at a news conference on Friday.

An employee helps customers purchase a Samsung Electronics' Galaxy Note 7 new smartphone at its store in Seoul, South Korea, September 2, 2016.  REUTERS/Kim Hong-Ji
An employee helps customers purchase a Samsung Electronics’ Galaxy Note 7 new smartphone at its store in Seoul, South Korea, September 2, 2016. (REUTERS/Kim Hong-Ji)

Models in China feature a different battery and are not being recalled by the world’s biggest smartphone vendor.

The recall comes just over two weeks after the launch of Samsung’s latest premium phone, which features an outsized screen and high-resolution camera, and follows reports of the (US$885) phone igniting while charging.

Koh, who declined to comment on the number of phones needing replacement, said Samsung had sold 2.5 million of the premium devices so far. The manufacturer plans to replace not only phones with faulty batteries sold to consumers, but also retailer inventories and units in transit.

“I can’t comment on exactly how much the cost will be, but it pains my heart that it will be such a big number,” he said.

The scale of the recall is unprecedented for Samsung, which prides itself on its manufacturing prowess. While recalls in the smartphone industry do happen, including for rival Apple Inc (AAPL.O), the nature of the problem for the Galaxy Note 7 is a serious blow to Samsung’s reputation, analysts said.

It must act quickly to minimize damage to its smartphone recovery, after a string of product successes had reversed a fall in market share, they added.

CUSTOMERS PUT ON HOLD

The phone first launched in 10 markets in North America, Asia and the Middle East. Further roll-outs have occurred since in markets like China, where sales started just this week. Its wider availability, set for coming weeks, is now on hold.

Germany’s biggest operator Deutsche Telekom said it had stopped delivering orders for the Galaxy Note 7, while French operator Orange said on its website that it had stopped pre-sales of the phone and postponed its planned sales launch – scheduled for Friday.

In Britain, mobile carriers EE and Vodafone (VOD.L) continue to accept pre-orders for the Note 7 on their sites. A Vodafone spokesman said its planned September 19 sales launch could now slip, but was waiting for more details from Samsung to decide.

U.S. operators have been taking pre-orders since early August. The No.1 U.S. wireless carrier Verizon Communications Inc (VZ.N) said it has stopped selling the Galaxy Note 7 in light of customer safety.

If a customer wants to return or exchange the Galaxy Note 7, Verizon said it would waive the restocking fee it charges customers through September 30.

T-Mobile US (TMUS.O), majority owned by Deutsche Telekom, also said it has suspended sales, while AT&T (T.N) and Sprint (S.N) could not be reached immediately for comment.

SECOND-HALF HOPES

Samsung has said it aimed for the Note 7 to maintain strong sales momentum in the second half of the year against stiffening competition from the likes of Apple Inc (AAPL.O), which is widely expected to release its latest iPhone next week.

“I am concerned more about a potential reduction in sales than recall costs,” said analyst Jay Yoo at Korea Investment & Securities. “The recall is likely to be a blow to earnings.”

Samsung said new sales of the Note 7 in affected markets would resume after it deals with replacements, a process it expects will begin in about two weeks. The firm would extend refund periods for affected customers and offer exchanges for other Samsung phones, Koh said.

Investors sold Samsung shares after the delay announcement on Thursday, stripping about US$7 billion from the firm’s market value, which remains just off recent record highs. Sentiment recovered somewhat in trading on Friday as the shares rose 0.6 percent compared with 0.3 percent in the broader market.

Credit Suisse said a recall or major shipment delays could wipe US$1.34 billion from Samsung’s 2016 operating profit…in an “absolute worst case” scenario. (Reuters)

An employee uses a Samsung Electronics’ Galaxy Note 7 new smartphone at its store in Seoul, South Korea, September 2, 2016.REUTERS/Kim Hong-Ji

 

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