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Tech Times | Samsung faces rough patch post-Galaxy Note 7

Published:Monday | October 17, 2016 | 12:00 AM


In its short, troubled history, Galaxy Note 7 was the victim of a recurring overheating problem that Samsung couldn't tamp down.

But that might be easy compared to what comes next.

The Samsung brand, once considered a gold standard in the tech industry, has been tarnished. Its stock price has been battered, shaving tens of billions of dollars from its market value. Costs associated with the termination and recall of the phablet-sized smartphone could top US$4 billion. And the pride of the South Korean company, so closely intertwined with its country's economy and government, has been badly bruised.

Its smartphone franchise, the top globally with a 23 per cent market share in the second quarter, according to IDC, could haemorrhage sales to rivals such as Apple, LG, Huawei Technologies and new entrant Google with its Pixel phone.

"The poor response Samsung had getting in front of this problem will have a lingering effect," says Steve Beck, founder of New York-based management consultancy cg42. "It could take one, maybe two, product cycles to recover. In the smartphone market, habits can form quickly."

The immediate impact was underscored last Wednesday, when Samsung sliced its third-quarter operating profit forecast 33 per cent to US$4.6 billion from a prior forecast, and lowered its sales outlook to a range of US$40.8 billion to US$42.7 billion. If those revised results hold, when Samsung announces its results it would announce the company's lowest operating income in two years.

"This has been a case study in how not to do a recall," says Mark Johnson, an associate professor of operations management at Warwick Business School in the UK who researches product recalls. "It was only when the second batch of phones began to fail that they began to show that there were more serious issues at play."

The death of the Note 7 could also usher in sweeping changes among Samsung's executive ranks. When the company announces its annual reorganisation at the end of the year, changes may be afoot in the mobile, quality-control and supply-chain operations, say Johnson and industry analysts.


Banned from Airplanes


The company also received more bad news last Friday when federal regulators issued an emergency order banning the Samsung Galaxy Note 7 smartphone from airplanes.

The US Department of Transportation, the Federal Aviation Administration and the Pipeline and Hazardous Materials Safety Administration said the phones can't be carried on flights to, from or within the United States. Passengers can't put them in checked baggage, and the phones can't be shipped as airfreight, the agencies said.

The order went into effect at noon EDT last Saturday.

"We recognise that banning these phones from airlines will inconvenience some passengers, but the safety of all those aboard an aircraft must take priority," said Transportation Secretary Anthony Foxx. "We are taking this additional step because even one fire incident inflight poses a high risk of severe personal injury and puts many lives at risk."

Passengers who try to take their Galaxy Note 7 phones aboard aircraft may be forced to relinquish their devices and may face fines, the agencies said.

"Passengers who attempt to evade the ban by packing their phone in checked luggage are increasing the risk of a catastrophic incident," they said. "Anyone violating the ban may be subject to criminal prosecution in addition to fines."