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The Note 7 is dead: What Samsung must do now

Matt Hamblen | Oct. 12, 2016
Be transparent about what caused overheating, fires, analysts advise

Samsung's Galaxy Note 7 and S Pen in blue coral. Credit: Samsung

Samsung formally stopped production, sales and exchanges of its Note7 smartphones early Tuesday, after several weeks of reports that the devices -- and even their replacements -- overheated, smoked and caught fire.

The death of the Note7 will be costly, according to many analysts.

Patrick Moorhead of Moor Insights & Strategy has pegged the overall cost to Samsung at $5 billion to $7.5 billion, not including the hard-to-estimate impact on the Samsung brand. Some analysts, including Credit Suisse, said the lost sales on up to 19 million Note7 phones is about $17 billion.

The life of the Note7 was short. Sales first began in the U.S. on Aug. 19. Samsung recalled 2.5 million Note7s globally on Sept. 2, with a formal U.S Consumer Product Safety Commission recall on Sept. 15.

Then, on Oct. 5, an apparently recalled Note7 began billowing smoke aboard a parked Southwest Airlines jet. The plane was evacuated; no one was injured. When more reports came in of recalled Note7s in recent days, several U.S. carriers decided to halt sales and exchanges.

Samsung finally pulled the plug early Tuesday with a succinct statement: "For the benefit of consumers' safety, we stopped sales and exchanges of the Galaxy Note7 and have consequently decided to stop production."

Never in the history of smartphones -- and possibly any other technology device -- has a model been recalled as well as production stopped on its replacement device.

Without that decision to stop in production, it was entirely possible the U.S. CPSC would have issued a recall for the replacement devices, said Moorhead.

Even though what has happened to the Note7 is unprecedented and potentially severe to Samsung's bottom line, there are a several analysts who believe that Samsung and the Samsung brand can survive the Note7's collapse. It all depends on how Samsung proceeds from here.

"Consumers are very forgiving," Moorhead added. "Every major auto manufacturer has had car defects that killed people, but you've never seen a car company go out of business over a recall. It's not the recall that kills you, but how you deal with it."

Analysts advised Samsung to take several steps in coming days.

Be transparent about the cause

Moorhead speculated that a faulty charging system was damaging the lithium ion batteries in the Note7s, leading to overheating and smoke and fires, both in the original and replacement units. Samsung hasn't explained, but must do so, several analysts said.

"Samsung needs to be very transparent about the issue and communicate what it was and how they [tried] to rectify it," said Carolina Milanesi, an analyst at Creative Strategies.


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