The Galaxy Note 7, Samsung’s flagship smartphone, reached customers on August 19. Within two weeks, 35 of the devices had either caught fire or blown up outright, prompting a voluntary recall of millions of handsets. And now, with replacement devices suffering the same explosive fate, the company has halted production. It doesn’t get much worse than this.
Update: Samsung has reached a "final decision" to stop all Note 7 production. It won't be making any more, but that doesn't make its problems go away.
Samsung’s latest step is absolutely the right thing to do. The fault in its Galaxies isn’t muddled reception or chipped finishes. The battery malfunction at the root of the issue can cause serious damage and bodily harm. But it’s also going to have serious implications for the company, and for a long time to come.
If you have a Note 7, replacement or original, return it, full stop. Samsung has a site with detailed instructions, but the simplest thing for most people is to take the device—whether you’ve personally experienced problems or not—back to your carrier. Verizon, AT&T, T-Mobile, and Sprint will all let you exchange them for any other smartphone, regardless of when you bought it.
Do this right now. Immediately. Don’t wait. If you need any further indication of how serious it is, those same four carriers will literally not let you exchange your Note 7 for another Note 7. They also won’t sell you a new one. They’re off the shelves. Until everyone knows for sure what’s wrong with them, they need to be out of circulation entirely. And yes, even Samsung’s on board with this.
“We recognize that carrier partners have stopped sales and exchanges of the Galaxy Note 7 in response to reports of heat damage issues, and we respect their decision,” the company said in a statement, adding that its investigation into the issues remains ongoing.
Lithium-ion battery chemistry is a tricky thing, though. Samsung already thought it had fixed the problem once, only to see five replacement devices suffer the same fiery fate. There’s no telling how long it’ll take for the Note 7 to be safe again.
“This is the worst-case scenario for Samsung,” says Jan Dawson, chief analyst at Jackdaw Research. “Now that the replacement devices seem to be having the same problems, it calls into question Samsung's whole product testing methodology and its scrutiny of its suppliers. That’s much worse than a one-off.”
And it should have much more serious reverberations.
The Note 7 is far from Samsung’s only product; it’s not even the company’s only flagship. But it’s one of the most popular smartphones available, and critical to the company’s mobile aspirations. By the time of that first recall, just a few weeks after going on sale, it had already sold 2.5 million units. Its ceiling was much higher.
“These phones should have sold well over ten million units, but instead Samsung may well end up selling very few and destroying much of the inventory, while buyers replace Note 7 devices with iPhones and other competing devices,” says Dawson.
The only way for Samsung to retain its customers, at this point, is for them to downsize to the smaller Galaxy S7 or S7 Edge, which is no sure bet. There’s ample competition out there, after all. Apple just released the latest iPhone. Google Pixel presents a high-end Android competitor (though only through one major carrier, Verizon). And the likes of LG and Motorola have innovative, non-exploding, premium handsets to tempt people to their side.
That wouldn’t nearly as serious an issue if Samsung had actually fixed the problem. The Note 7’s fan base is a loyal one, says Gartner analyst Tuong Nguyen.
“We’re talking about Samsung’s high-end, flagship product. The people who bought this wanted a Samsung, and they wanted a Note 7,” says Nguyen, who notes that few people would throw $900 at a smartphone arbitrarily. “You choose the cherry red Corvette because you wanted the cherry red Corvette.”
Nguyen sees more opportunity for competing Android manufacturers than for Apple, given the inconvenience of jumping from one operating system to another. Regardless of what alternative people choose, though, Samsung’s position remains the same: Warehouses full of unsellable fire hazards, and a flagship model with an uncertain future.
The recall so far hasn’t had a crushing financial impact; Samsung reported a profit in the most recent quarter, which included the first round of Note 7 returns. A fresh round of problems, though, means more trouble for Samsung’s bottom line. And, even more importantly, its reputation.
The biggest problem for Samsung right now is that there are still potentially millions of devices in circulation that could overheat. And the longer the issue takes to resolve, the broader the awareness.
Airlines have for weeks been asking passengers to power down their Note 7 devices before takeoff (though even that didn’t stop one Note 7 from catching fire before a Southwest flight last week). It’s not just Note 7 owners who know there’s a problem. It’s anyone who’s been on a long-distance flight.
“That definitely increases consumer awareness,” says Nguyen.
As does the constant barrage of news reports with each fresh incident. Note 7 danger has reached beyond tech news junkies; by now, it’s mainstream. And it keeps getting worse, in a way that may have implications beyond just one device.
“To be in a situation where you claim to have identified the issue and solved it, only for the exact same issue to pop up again despite the supposed solution, is not a good look for a company of Samsung's size,” says Dawson. “The perceptions that flow from this may well spill over into other parts of their product portfolio.”
Not every Note 7 will overheat; in fact, only a small percentage of them has. But for as long as there are units in circulation, there’s a chance for yet another incident, another round of headlines, another damaging blow. The way the smartphone business works, that may not take long to snowball.
“Brand loyalty is extremely important, but you don’t see it much now in the smartphone space outside of Apple,” says Nguyen. “Everyone’s at a precarious point, so something like this shakes what little brand value has been established.”
All of which puts Samsung in a difficult position. They can make this halt in production permanent, taking a mulligan on its most important mobile release this year and hoping no more incidents arise in the smartphones currently out there. Or it can continue to retool, risking another misfire and the damage that would go with it.
“At this point, Samsung should scrap the Note 7 altogether and move on,” says Dawson. “The longer this lingers on, the longer the brand impact will stick around too, and the harder it will be to move on from it.”
The financial hit would be substantial. But it may still be better than letting Samsung’s reputation go up in smoke.
