Samsung Galaxy Note 7 Production Halted After Replacement Units Catch Fire: Report

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Samsung Galaxy Note 7 Production Halted After Replacement Units Catch Fire: Report

Highlights

  • Top US carriers have stopped exchanging or selling new Galaxy Note 7s
  • Samsung's decision done in cooperation with Chinese authorities and US
  • Samsung said it was "adjusting" shipments of Galaxy Note 7s

Samsung has suspended production of its flagship Galaxy Note 7 smartphones, a source said on Monday, after reports of fires in replacement devices added to the tech giant's worst ever recall crisis.

Top US and Australian carriers also suspended sales or exchanges of Galaxy Note 7s, while major airlines reiterated bans on passengers using the phones, after smoke from a replacement device forced the evacuation of a passenger plane in the United States last week.

Fires in phones that were meant to replace devices that had been recalled because of their propensity to explode would be a disaster for the world's largest smartphone maker, suggesting it had failed to fix a problem that has already hurt its brand and threatens to derail a recovery in its mobile business.

"If the Galaxy Note 7 is allowed to continue it could lead to the single greatest act of brand self-destruction in the history of modern technology," said Eric Schiffer, brand strategy expert and chairman of Reputation Management Consultants.

"Samsung needs to take a giant write-down and cast the Galaxy Note 7 to the engineering hall of shame next to the Ford Pinto."

In a regulatory filing, Samsung said it was "adjusting" shipments of Galaxy Note 7s to allow for inspections and stronger quality control due to some devices catching fire.

It did not comment on the production halt or the cause of the fires, while the source - who declined to be identified because they were not authorised to speak to the media - did not explain whether specific problems had been identified or when production was halted.

A Samsung official told Reuters earlier on Monday it was investigating reports of "heat damage issues" and would take immediate action to fix any problems in line with measures approved by the US Consumer Product Safety Commission.

On September 2, Samsung announced a global recall of 2.5 million Galaxy Note 7s due to faulty batteries which caused some of the phones to catch fire.

It ordered new batteries from another supplier and started shipping replacements to customers just two weeks later. But similar problems arose with a replacement Galaxy Note 7 on October 5, which began smoking inside a Southwest Airline flight in the United States.

(Also see: DGCA May Issue New Advisory on Samsung Galaxy Note 7 Phones)

Samsung shares, which have rebounded after an initial sell-off on the recall, closed down 1.5 percent, compared with a 0.2 percent rise for the broader market.

"I think the cleanest thing to do is to give up on the Galaxy Note 7," said HDC Asset Management fund manager Park Jung-hoon, whose fund owns Samsung shares.

"What's scary is that this is causing people to repeatedly doubt Samsung's fundamental capabilities, so it's important for Samsung to get past this issue quickly."

Samsung's recall crisis has coincided with pressure from one of the world's most aggressive hedge funds, Elliott Management, to split the company and pay out $27 billion in a special dividend.

Airplane ban
Major airlines, air regulators and airport authorities reiterated bans on passengers using the phones, saying Galaxy Note 7s should not be powered up or charged on board.

A South Korean government agency said it was monitoring reports of the fires and warned that the recalled Galaxy Note 7 devices should not be used or charged inside airplanes.

Mobile carriers also took action.

Verizon, the No.1 US wireless carrier, said on Monday it would suspend the exchange of replacement Galaxy Note 7s, and would allow customers to exchange the replacement for another smartphone.

AT&T, the No.2 US wireless carrier, said earlier that it would stop issuing replacement Galaxy Note 7s and would let customers with a recalled Galaxy Note 7 exchange that device for another Samsung smartphone or other smartphone of their choice.

No.3 wireless carrier T-Mobile US also said it was temporarily halting sales of new Galaxy Note 7s as well as exchanges while Samsung investigated "multiple reports of issues" with its flagship device.

T-Mobile offered customers who brought in their Galaxy Note 7s a $25 credit on their phone bill.

Australia's largest carrier, Telstra Corp, said Samsung had paused supply of new Galaxy Note 7s, while fellow Australian carriers Optus and Vodafone said they had stopped issuing new Galaxy Note 7s.

South Korea's two largest mobile carriers, SK Telecom and KT Corp, said they were monitoring the situation.

© Thomson Reuters 2016

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