Samsung halts Note 7
production after new fire scare: source
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[October 10, 2016]
By Se Young Lee
SEOUL
(Reuters) - Samsung Electronics Co Ltd has suspended production of its
flagship Galaxy Note 7 smartphones, a source said on Monday, after
reports of fires in replacement devices added to the tech giant's worst
ever recall crisis.
Top U.S. and Australian carriers also suspended sales or exchanges of
Note 7s, while major airlines reiterated bans on passengers using the
phones, after smoke from a replacement device forced the evacuation of a
passenger plane in the United States last week.
Fires in phones that were meant to replace devices that had been
recalled because of their propensity to explode would be a disaster for
the world's largest smartphone maker, suggesting it had failed to fix a
problem that has already hurt its brand and threatens to derail a
recovery in its mobile business.
"If the Note 7 is allowed to continue it could lead to the single
greatest act of brand self-destruction in the history of modern
technology," said Eric Schiffer, brand strategy expert and chairman of
Reputation Management Consultants.
"Samsung needs to take a giant write-down and cast the Note 7 to the
engineering hall of shame next to the Ford Pinto."
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In a regulatory filing, Samsung said it was "adjusting" shipments of
Note 7s to allow for inspections and stronger quality control due to
some devices catching fire.
It did not comment on the production halt or the cause of the fires,
while the source - who declined to be identified because they were not
authorized to speak to the media - did not explain whether specific
problems had been identified or when production was halted.
A Samsung official told Reuters earlier on Monday it was investigating
reports of "heat damage issues" and would take immediate action to fix
any problems in line with measures approved by the U.S. Consumer Product
Safety Commission.
On Sept. 2, Samsung announced a global recall of 2.5 million Note 7s due
to faulty batteries which caused some of the phones to catch fire.
It ordered new batteries from another supplier and started shipping
replacements to customers just two weeks later. But similar problems
arose with a replacement Note 7 on Oct. 5, which began smoking inside a
Southwest Airline flight in the United States.
Samsung shares, which have rebounded after an initial sell-off on the
recall, closed down 1.5 percent, compared with a 0.2 percent rise for
the broader market.
"I think the cleanest thing to do is to give up on the Note 7," said HDC
Asset Management fund manager Park Jung-hoon, whose fund owns Samsung
shares.
"What's scary is that this is causing people to repeatedly doubt
Samsung's fundamental capabilities, so it's important for Samsung to get
past this issue quickly."
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![](../images/101016PICS/busine26.jpg)
A couple tries out Samsung Electronics' Galaxy Note 7 at the
company's headquarters in Seoul, South Korea, October 10, 2016.
REUTERS/Kim Hong-Ji
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Samsung's recall crisis has coincided with pressure from one of the
world's most aggressive hedge funds, Elliott Management, to split the
company and pay out $27 billion in a special dividend.
AIRPLANE BAN
Major airlines, air regulators and airport authorities reiterated bans on
passengers using the phones, saying Note 7s should not be powered up or charged
on board.
A South Korean government agency said it was monitoring reports of the fires and
warned that the recalled Note 7 devices should not be used or charged inside
airplanes.
Mobile carriers also took action.
Verizon Communications Inc , the No.1 U.S. wireless carrier, said on Monday it
would suspend the exchange of replacement Note 7s, and would allow customers to
exchange the replacement for another smartphone.
AT&T
Inc, the No.2 U.S. wireless carrier, said earlier that it would stop issuing
replacement Note 7s and would let customers with a recalled Note 7 exchange that
device for another Samsung smartphone or other smartphone of their choice.
No.3 wireless carrier T-Mobile US Inc also said it was temporarily halting sales
of new Note 7s as well as exchanges while Samsung investigated "multiple reports
of issues" with its flagship device.
T-Mobile offered customers who brought in their Note 7s a $25 credit on their
phone bill.
Australia's largest carrier, Telstra Corp, said Samsung had paused supply of new
Note 7s, while fellow Australian carriers Optus and Vodafone said they had
stopped issuing new Note 7s.
South Korea's two largest mobile carriers, SK Telecom and KT Corp, said they
were monitoring the situation.
(Additional reporting by Parikshit Mishra in Bengaluru and Nataly Pak in Seoul;
Writing by Lincoln Feast; Editing by Miyoung Kim, Stephen Coates and Ted Kerr)
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