Exploding Note 7 could cost Samsung $24 billion

  • 12/10/2016
Exploding Note 7 could cost Samsung $24 billion

Samsung Electronics' biggest recall could cost the company as much as $24 billion after it halted production of its flagship Galaxy Note 7, following numerous reports of the phones catching fire.

That's a big jump from the $7 billion loss analysts originally predicted when the company was expected to resume sales later this year.

Samsung's latest decision will mean lost sales of up to 19 million phones.

In a statement, the Korean firm said: "We can confirm the report that Samsung permanently discontinues the production of Galaxy Note 7."

For Samsung, with a market value of more than NZ$300 billion, the loss of sales of one model could be absorbed.

But analysts predict the bigger problem will be the long-term impact on its reputation and brand.

"We think the Note 7 incident may hurt demand for Samsung's other smartphone models as well," says financial services group Nomura.

"The [Note 7] unit is forever going to be tarnished and the danger is that the brand becomes irretrievably damaged as well," says UK lawyer Stephen Robb, an expert in product liability claims.

"They need to be writing to every customer with an apology and some form of 'compensation'... It will clearly be costly for the company but the alternative is to end up going the way of Nokia and Blackberry."

Samsung announced the recall of 2.5 million Note 7s in early September, and on Tuesday the company told mobile carriers to stop selling the devices.

Users have been told to keep their phones switched off while Samsung investigates new reports of fires in replacement Note 7s.

"Take the SIM out, switch it off and take it straight back to the shop," technology expert Paul Brislen told the Paul Henry programme.

"Don't wait, don't leave it at home because we don't know what is causing this issue."

Mr Brislen says problem probably stemmed from Samsung's bid to overtake Apple in the smartphone market.  

"They saw that the iPhone 7 was really just an incremental step forward for Apple. It's really not innovating these days so they thought 'great, we'll take the lead'… and presumably they've take a step too far."

Samsung is now awaiting the results of a probe by US safety regulators.


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