Recall threatens Samsung brand
Company’s reputation and bottom line suffer as crisis shaves $15b off its market value as of late August
Exploding batteries and an embarrassing recall of a flagship gadget during a controversial, closelywatched leadership transition — it’s been a bad year for Samsung, and analysts warn the trouble isn’t over yet.
With ever-fiercer competition in the saturated smartphone market, South Korea’s biggest firm is desperate to avoid a full-blown disaster that could cost billions, hammer its reputation and taint its new leadership.
Just weeks after the early roll out of the Galaxy Note 7 “phablet”, the world’s largest maker of smartphones was forced to recall 2.5 million units globally following complaints its battery exploded while charging.
“Samsung appears to have rushed fast to roll out the Note 7 with the iPhone 7 in mind ... and it is paying a hefty price now,” said Greg Roh, analyst at Seoul-based HMC Investment & Securities.
With images of charred phones flooding social media, the unprecedented recall was a humiliation for a firm that prides itself as an icon of innovation and quality — and the timing of the crisis could not be worse.
The Note 7 was meant to underpin growth this year as Samsung struggles to boost sales, squeezed by Apple in the high-end sector and Chinese rivals in the low-end market, as profit has stagnated.
One bright spot this year was the flagship handset Galaxy S7, which earned rave reviews and boosted operating profit to a two-year high in the second quarter. The Note 7 was crucial to sustaining that momentum.
The recall, currently underway in 10 nations, could cost the firm $3 billion (Dh11 billion) in the long run, some analysts say, while Roh warned the fallout could significantly hurt profit for months.
The crisis has also shaved $15 billion off its market value since late August, when the firm’s share price hit the highest point so far this year.
While unconnected, Samsung said last week it had sold shares in four technology companies to free up money, in a move it said was “aimed at focusing on our core business”.
Samsung and its sister firms have in recent years divested from non-core operations as the parent Samsung Group sought to streamline business amid a generational power transfer in the founding Lee family.