Samsung issues recall for
Galaxy Note 7 after battery fires
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[September 02, 2016]
By Se Young Lee
SEOUL (Reuters) - Samsung Electronics
Co Ltd will replace all Galaxy Note 7 smartphones equipped with
fire-prone batteries and halt sales of the flagship product in 10
markets, a devastating blow for what had been a revival in the
firm's mobile business.
Koh Dong-jin, head of the South Korean company's smartphone
business, spoke at a news conference jam-packed with reporters and
cameras where he expressed regret at the recall, which will affect
markets including South Korea and the U.S. - but not China, where
models feature a different battery.
The announcement on Friday comes just over two weeks since the
premium device's launch, and follows reports of the 988,900 won
($885) phone igniting while charging.
The executive, 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," Koh 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.
Analysts said the firm must act quickly to minimize damage to its
smartphone recovery, after a string of product successes had
reversed a fall in market share at the world's biggest smartphone
vendor.
The firm 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, 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 $7 billion from the firm's market value.
Sentiment recovered somewhat in Friday trade as the shares rose 0.6
percent compared with 0.3 percent in the broader market.
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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
Credit Suisse said a recall or major shipment delays could wipe 1.5 trillion won
($1.34 billion) from Samsung's 2016 operating profit estimate of 30.2 trillion
won in an "absolute worst case" scenario.
But the brokerage said that scenario was unlikely, as it expected Samsung to
resolve problem before the fourth quarter of the year.
HI Securities analyst James Song said the replacement costs may be somewhat
limited as Samsung could recycle components of the recalled phones save the
battery.
"It is clever for Samsung to replace the affected models, not offering fixes.
That helps enhance consumer confidence and help reduce potential falls in future
sales," he said.
Hyundai Securities also said in a report on Thursday that the Note 7 problem
should be resolved within "a few weeks". The brokerage retained its
third-quarter operating profit forecast of 8.5 trillion won.
Samsung's mobile division accounted for about 54 percent of the firm's
January-June operating profit of 14.8 trillion won.
($1 = 1,117.4300 won)
(This version of the story has been corrected to add dropped text in the second
paragraph)
(Reporting by Se Young Lee; Additional reporting by Hyunjoo Jin; Editing by
Stephen Coates and Christopher Cushing)
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