Samsung’s explosion nightmare gets ‘worse and worse’

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Samsung Galaxy Note 7
Samsung Galaxy Note 7
Samsung Mobile

Seoul - Samsung Electronics lost $22bn of market value over two days as investors factor in a bigger hit to its bottom line from widening bans and warnings on its Note 7 smartphones.

Shares have plunged 11% since Friday, the biggest two-day decline since 2008, after US regulators joined the company in cautioning users to power down their Note 7s and refrain from charging them.

Aviation authorities and airlines have called on passengers to stop using the gadgets during flights.

The stock drop suggests the damage to Samsung’s brand could go well beyond the early estimates of $1bn for a single product’s recall.

The company has spent heavily on marketing its name in past years, and had hoped to get a head start on Apple by unveiling its device weeks before the new iPhone emerged.

That advantage has now disappeared.

“Samsung’s nightmare is just getting worse and worse,” said Bryan Ma, vice president of devices research for IDC.

It’s possible that airlines, rather than isolating Note 7s, may decide to ban all Samsung phones given the difficulty of differentiating between models.

“If true, then the Note 7 could end up dragging down the rest of the portfolio.”

Samsung announced the recall on September 2 after about three dozen of the premium smartphones were found to have batteries that caught fire or exploded.

On Saturday, Samsung told users in South Korea to stop using the devices and to bring them to its service centres - less than a month after they made their debut.

Note 7s with new batteries are due to become available on September 19. The Suwon,  South Korea-based has said about 2.5 million had been shipped before their recall, including those in the hands of consumers and carriers.

The US Consumer Product Safety Commission and Samsung are in talks on an official recall of the devices as soon as possible.

Almost all CPSC recalls are done voluntarily in conjunction with a company and the scope of any action on the Note 7 may be identical to what Samsung has already suggested to consumers. But once the agency becomes involved, it triggers additional protections for people. For example, US law prohibits the sale or resale of any recalled item once CPSC acts.

“The uncertainty over the Note 7 recall has grown following the tough reactions from the U.S.,” said Lee Seung Woo, an analyst at IBK Securities Co. in Seoul.

“Samsung has to settle this situation as early as possible by replacing every Note 7 device in order to reassure customers. In the worst case scenario, Samsung may have to consider discontinuing Note 7 sales for a time.”

The CPSC advisory came on the heels of warnings from aviation regulators in several countries and airlines. The European Aviation Safety Agency on Friday cautioned flyers against packing them in checked bags, according to a posting on its website. That followed a non-binding warning issued Thursday by the US Federal Aviation Administration.

Similar moves have taken place in India while Singapore Airlines barred travellers from powering up or charging the devices on flights. US carriers are taking a variety of steps following the FAA’s statement.

Delta Air Lines posted a notice on its website telling passengers to comply with the regulator’s guidance while Southwest Airlines will share information on its website and social-media channels to make passengers aware of the FAA’s recommendations.

“The market certainly thinks this is going to cost more than $1bn,” said Anthea Lai, an analyst with Bloomberg Intelligence.

“You have to persuade normal consumers that they should try to convince airlines and guards that these phones are now okay. Most people are just not going to bother. They’ll want new phones.”

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