Could Cost Samsung Up to $17.0 Billion in Losses
In one of the biggest failures in the cell phone industry, Samsung Electronics Co. Ltd. has decided to scrap its “Galaxy Note 7” smartphone less than two months after launching it to compete with Apple Inc.’s (NASDAQ:AAPL) latest “iPhone.”
Samsung announced the recall of 2.5 million Note 7s following many complaints of the phones catching fire in what analysts say could be one of the costliest product safety failures in tech history.
“Taking our customer’s safety as our highest priority, we have decided to halt sales and production of the Galaxy Note 7,” the company said. (Source: “Samsung to Permanently Discontinue Galaxy Note 7 Smartphone,” The Wall Street Journal, October 11, 2016.)
Ending its Note 7 sales could cost Samsung up to $17.0 billion and damage its other brands at a time when the competition in the high-end cell phone market is heating up.
Last week, Google’s parent company, Alphabet Inc (NASDAQ:GOOGL), unveiled two smart handsets, the “Pixel” and larger “Pixel XL,” as part of its push to grab a major portion of the $400.0-billion smartphone hardware market.
Samsung’s move stands to benefit its competitors’ products, including the iPhone, and can give the Pixel series a good head start to fill in the gap in the high-end market for cell phones after Samsung’s exit.
Samsung shares plunged eight percent after the news was made public, wiping $20.0 billion off the company’s market capitalization. Other than financial losses, the South Korean electronics group faces huge damage to its reputation as customers question the company’s safety control standards.
Media reports say Samsung is asking all global carriers to stop making the Note 7 available to customers after it failed to fix the problem and is currently investigating the problem. Owners of the Note 7, which cost over $800.00, may exchange their device for a different one or get a refund.
“This is the first time that I have seen a product recall go this badly wrong,” said financial analyst Richard Windsor. “When it comes to the damage that it will do to Samsung’s brand, we are in uncharted territory”. (Source: “Samsung scraps Galaxy Note 7 over fire concerns,” Reuters, October 11, 2016.)