More nightmares for Samsung – Galaxy Note 7 production halted after fire

Written by on October 10, 2016 in News with 0 Comments
A visitor tries out a Samsung Electronics' Galaxy Note 7 at company's headquarters in Seoul, South Korea, October 5, 2016. REUTERS/Kim Hong-Ji

A visitor tries out a Samsung Electronics’ Galaxy Note 7 at company’s headquarters in Seoul, South Korea, October 5, 2016. REUTERS/Kim Hong-Ji

SEOUL (Reuters) – Samsung Electronics Co Ltd 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 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 has 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 should arrest the sale of Note 7’s and protect the safety of their clients before profits and ultimately as a byproduct protect Samsung. Samsung needs to take a giant write-down and cast the Note 7 to the engineering hall of shame next to the Ford Pinto.”

Samsung did not immediately comment on the production halt, 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.

Samsung told Reuters 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. 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, were down 1.4 percent as of 0549 GMT, compared with a 0.2 percent rise for the broader market.

“I thought the Note 7 matter was coming to an end, but it’s becoming an issue again,” Alpha Asset Management fund manager CJ Heo said, adding he expected the ongoing crisis to hurt sales in the short-term.

AIRPLANE BAN

Major airlines and airport authorities urged passengers to stop using the phone on board.

Hong Kong International Airport “strongly advised” passengers not to turn on or charge Note 7s on aircraft or stow the phones in checked baggage.

Singapore Airlines also banned the powering up and charging of Note 7s on all its flights.

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 on Monday.

AT&T Inc, the No.2 U.S. wireless carrier, said 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 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.

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.

(By Se Young Lee; Additional reporting by Parikshit Mishra in Bengaluru and Nataly Pak in Seoul. Writing by Lincoln Feast; Editing by Miyoung Kim; and Stephen Coates)

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