Up in smoke: Samsung throws in a $17B towel on the Note 7

If at first you don’t succeed … fry, fry again. Not long ago, I flew from Minneapolis to DC and had settled in for the rote safety briefing from the flight attendants. This time, the script had a surprising addition — a warning to make sure that all Samsung Galaxy Note 7s had been powered off and remained so for the entire flight. When a product is so bad that it gets its own specific warning from airlines to keep it from being used, I thought, it’s not long for this world.



Samsung Electronics said Tuesday that it is ending production of Galaxy Note 7 smartphones permanently, a day after it halted global sales of the star-crossed devices.

The South Korean company said in a regulatory filing that it decided to stop manufacturing Note 7s for the sake of consumer safety. …

It started shipping new Note 7 phones that were supposed to be safer. But reports that even the replacements were catching fire led Samsung to announce it was stopping sales of the devices.

Authorities in the U.S. and South Korea are still investigating why even the replacement Note 7 phones that Samsung equipped with a safer battery are catching fire. An official at the South Korean safety agency said the replacement phones may have a defect that is different from the problem with the original Note 7s.

Yesterday, Samsung froze all sales and announced a full-return recall policy. The idea, presumably, was to allow Samsung time to re-engineer its latest iteration of the Note line, but re-engineering didn’t work. For some reason, the batteries keep catching fire even on replacement models. The best option under these circumstances is to pull them altogether and start from scratch. The longer this goes, the more the Note 7 becomes the Ford Pinto of 2016. Samsung’s fortunate that their product hasn’t killed someone yet, but the longer they stretch this out, the more opportunity that has to come to pass.


Make no mistake, though — the damage has already been done, up to $17 billion worth:

If Samsung stops selling the Note 7s, that will translate into lost sales of up to 19 million phones, or nearly $17 billion, that the firm was expected to generate during the Note 7’s product cycle, according to analysts including those at Credit Suisse.

That’s a big increase from $5 billion in missed sales and recall costs analysts initially expected Samsung to incur under the assumption that the firm would resume global Note 7 sales in the fourth quarter. …

“This has probably killed the Note 7 brand name,” said Edward Snyder, the managing director of Charter Equity Research.

You think?

That leaves millions of Samsung users that had already upgraded from a previous Note version high and dry. Some might decide to switch to the Samsung Galaxy 7, the latest iteration on the pure smartphone side, one with no battery issues. Others might be looking elsewhere to keep the same notepad experience, and one manufacturer may end up with a windfall, the Washington Post predicts:

As the world watches Samsung deal with the fallout from what could be the worst smartphone launch in recent memory, there should be a smile on faces at Google headquarters.

Samsung is a crucial Google partner for its Android mobile operating system. Indeed, Android and Samsung have become almost synonymous for many consumers these days — something that Google may not particularly want for its open mobile operating system. So perhaps to shift that perception, Google is trying to stake its own claim to being the premier Android brand with its recent introduction of its Pixel and Pixel XL. …

The fallout has been clear: Slightly more than a third of Samsung smartphone owners said they would not buy another phone from the company after the Galaxy Note 7 recall, according to a survey from brand consultant firm Branding Brand, which conducted the poll before the replacements started catching on fire.

Meanwhile, Google’s other rival in the mobile world — Apple — has been dogged by complaints that it is lagging in innovation. Many analysts who expressed that concern were not soothed by the latest iPhone, which took some small steps forward but also controversially ditched the headphone jack.


Unfortunately, Google entered into an exclusive arrangement with Verizon for the Pixel models, clearly not anticipating the opportunity opened up by the Note 7 debacle. That might have some at Google rethinking that business model in the future, but for now it leaves the field wide open to Samsung’s other competitors. It will be months before Samsung can get another Note model to satisfy current Note aficianados’ desire to keep up with the latest technology. At least, though, they’ve finally recognized that the Note 7 is a dead duck. Maybe flight attendants can shortly get back to their standard script.

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