Samsung Electronics

Samsung recalls 191,000 Note 7 phones in China after 20 cases of overheating batteries reported

Samsung suffers potential brand damage as US carriers halt Galaxy Note 7 sales amid concerns about replacement units catching fire

PUBLISHED : Monday, 10 October, 2016, 10:06pm
UPDATED : Tuesday, 11 October, 2016, 3:21pm

Samsung Electronics Co. is recalling 191,000 of its Galaxy Note 7 smartphones in China, after reported cases of an overheating battery forced the world’s largest maker of Android phones to stop worldwide production and warn customers to switch off their devices.

The company will recall 190,984 devices in China, including 1,858 units which were already taken back in a September 14 recall, according to a statement today by the General Administration of Quality Supervision, Inspection & Quarantine.

As many as 20 cases of Note 7 batteries overheating or catching fire have been reported in China, the inspection administration said. The company will replace Note 7 customers with other Samsung brand phones, reimburse buyers with any price difference and present them with a gift voucher valued at 300 yuan (US$45), according to the statement.

The crisis couldn’t come at a worse time for Seoul-based company, which is facing competition by Apple’s new iPhone 7 model on one end, with China-made phones running on the Android operating system on the other. A global recall could cost Samsung US$630 million in foregone sales, analysts said.

Samsung’s shares plummeted as much as 8 per cent in Seoul to 1.545 million won, the biggest single day drop in at least three years.

Samsung issued a global alert on Tuesday for customers to stop using the device immediately, and called for an immediate halt to the sale and exchange of its flagship phone. A similar notice applies to customers in Hong Kong and Macau. The phone maker said it will announce exchange and refund arrangements shortly.

The beleaguered South Korean technology giant is also expected to see tougher competition from other major Android smartphone suppliers, amid an investigation into cases of Note 7 replacement units catching fire, more than a month after the company started a global recall of about 2.5 million of themodel, whose faulty batteries were blamed for previous incidents.

“Samsung’s brand has been dragged through the mud by this whole Note 7 situation,” Bryan Ma, a vice-president at technology research firm IDC, told the Post on Monday.

“This could, of course, lead to an erosion of its smartphone sales, especially against strong Chinese smartphone brands like Huawei, Oppo and Vivo.”

A lot of rich Chinese across the country would not think of buying [Samsung’s] Galaxy smartphone models now
Tang Qi, a smartphone dealer in Shenzhen’s Huaqiangbei electronics district

IDC has ranked Samsung as the world’s largest supplier of smartphones since the third quarter of 2012.

Yet the company has dropped out of the top five smartphone brands in mainland China, the world’s biggest market for these devices, since the second quarter of 2015.

United States mobile network operators AT&T and T-Mobile separately announced over the weekend a halt in Note 7 sales due to new incidents involving allegedly fire-prone replacements of that model.

The new cases are being investigated by Samsung and the US Consumer Product Safety Commission.

The two US carriers have started offering other Samsung models or other smartphone brands as replacement to Note 7 devices used by their subscribers.

South Korean brokerage firm NH Investment and Securities estimated the potential lost sales opportunity from Samsung’s Note 7 fiasco at about US$630 million, a Korea Herald report said on Monday.

Lee Se-cheol, an NH Investment analyst, was cited in the report as saying that the Note 7 recall would be an ongoing issue for Samsung for the rest of this year, following the company’s decision to temporarily adjust the production volume of that smartphone model.

He said the company’s earnings for this year, however, would continue to be buttressed by its semiconductor and display businesses.

Ma pointed out that Samsung should “come clean and be more transparent about what went wrong instead of providing corporate lip service to their consumers”.

“It needs to own up if it’s a design flaw and not just a battery issue,” he added.

In Shenzhen’s busy Huaqiangbei electronics district, retailers have cut the price of the Note 7 to as low as 4,400 yuan (HK$5,113) on Monday from a high of 6,100 yuan on August 31.

Tang Qi, a smartphone dealer at a shop in the district, said “almost all customers here have lost interest in the Note 7 already” even before news about a potential halt in the production of the model was widely reported.

“A lot of rich Chinese across the country would not think of buying [Samsung’s] Galaxy smartphone models now,” Tang said.