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Samsung to stop making top phone; Note 7 discontinued

🕐 4 min read

Samsung said it plans to discontinue production of its highest-end smartphone, an unprecedented move for the company and one that could reorder the global market for mobile devices.

The Galaxy Note 7 was supposed to be the crown jewel of the smartphone lineup for Samsung, which once garnered little respect in the clubby world of Silicon Valley but is now the primary rival to Apple. Samsung’s ascendancy has been celebrated by those who wanted a high-quality alternative to the iPhone and held up in Korea as evidence of the country’s arrival as tech power.

But Samsung’s failure to manufacture phones that do not explode in purses or catch on fire on flights may be catastrophic for the company’s brand, many technology analysts said. Samsung’s shares fell 7.5 percent in Tuesday trading in Seoul, wiping out $17 billion of the company’s value.

Some analysts said the company, in its race to release a new phone ahead of Apple, simply rushed. The Note 7’s battery was one of its best selling points – more powerful than that of the iPhone 7 Plus and capable of charging the phone nearly to full power in 30 minutes.

Apple had endured criticism for not bringing such innovations to the iPhone. But its caution now looks wise, said John Cui, an assistant professor at Georgetown’s McDonough School of Business.

“Had this just stopped at replacement units, Samsung would have walked out of this,” added Ramon Llamas, an analyst at the tech market research firm IDC. “The fact that it didn’t work out again? Now we’ll be suspicious.”

The damage isn’t likely to be contained to the Galaxy Note model, which had a large 5.7-inch screen and cost $800. The government has also issued a warning about exploding Samsung washing machines, though the problems with those appliances are not related to a battery.

A recent survey from the brand-analysis firm Branding Brand found that 34 percent of current Samsung customers said they wouldn’t buy another smartphone from the company – in a poll taken before news surfaced of the replacement phones also catching on fire.

The Note 7 fires also call to mind other incidents involving lithium-ion batteries, which increasingly power most personal devices and cutting-edge technologies, such as electric cars, mobile gadgets and children’s toys.

Unexpected explosions forced U.S. retailers to pull popular children’s scooters called hoverboards this year. Boeing had to ground its super-advanced 787 Dreamliner jets because of lithium-ion battery fires in 2013.

The supply chains that build the batteries in smartphones and other electronics are notoriously complex and opaque. Companies such as Samsung and Apple buy batteries from several makers, which source the battery parts from different firms across the globe.

Samsung, the largest battery-maker in the world, last year bought smartphone batteries from its own Samsung SDI division as well as from Maxwell, Amperex Technology Limited, Panasonic and Lishen, according to Avicenne Energy, a consulting firm. But Samsung was unusually dependent on Samsung SDI for about 75 percent of its batteries. By contrast, Apple has bought iPhone batteries from five companies, none of which supply more than a third of its batteries. That enables Apple to nimbly switch manufacturers if a problem surfaces.

Samsung’s missteps are likely to help Apple, which offers the only other premium large-screen smartphone that is well-recognized by consumers. The new iPhone 7 Plus sold out within a day, just as reports of exploding Note 7s emerged. In general, large-screen phones generate more profits for manufacturers than smaller ones.

Other analysts said Samsung’s problems might be an even more important development for Android makers, many of which have struggled to make a dent against Apple and Samsung.

Google, in particular, stands to gain, analysts said. The tech giant recently introduced its own line of high-end phones, called the Pixel, which could appeal to the anti-iPhone crowd.

“The Pixel phone could be a beneficiary here” since it shares many traits with the Note 7, said Brian Blau, vice president of technology research firm Gartner.

Samsung’s crisis may be cushioned because carriers already have agreed to promote its other phones for the crucial holiday season.

But over the long term, the debacle may set back its relationship with its customers, who had to wade through shifting warnings from the company.

At first Samsung was slow to offer replacements. Only after U.S. officials, as well as airlines and subway systems, began to warn passengers to turn off their Galaxy Note 7s did the company offer an official recall.

And as of Tuesday, Samsung had not extended that recall to include the replacement Note 7 phones sold after Sept. 15, even though several of those devices have reportedly caught fire. The company has only asked owners of the replacements to stop using those models.

The mixed messages have frustrated U.S. officials. In a speech last month, Consumer Product Safety Commission Chairman Elliot Kaye criticized Samsung for trying to handle the problem without coordinating with his agency and for putting customers at risk.

“I would say that’s uncommon,” said Kaitlin Wowak, an assistant professor of business at Notre Dame. “It’s important for companies dealing with recalls to have whatever relevant organization – the FDA, NHTSA, the CPSC – get behind them.”

The Washington Post’s Todd C. Frankel contributed to this report.

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