A 'Note'-worthy fiasco

Samsung's failure can dent the industry's image

The last fortnight must have seemed like an escalating nightmare for Samsung. Its new flagship android handset, the Galaxy Note7, was hailed for its futuristic design, terrific specifications, large screen and powerful battery. It was expected to go head-to-head with the new iPhone7 launched around the same time by Samsung’s closest rival Apple. But the Note7 ran into trouble when a few models spontaneously caught fire. Consequently, about 2.7 million units of the new phone were recalled and replaced. Initially, Samsung’s engineers assumed that it was the battery that did it. However, the replacements, which used a battery from a different supplier, also exhibited a tendency to heat up and catch fire, leading to more recalls. Samsung has since called a halt to the production of this model after about 90 documented instances of meltdown. Experts believe the problem was caused by the handset’s underlying technology and Samsung’s decision to rush it out before the latest iPhone launch. The fiasco has hit its bottom line and its brand value. But the bad news is not limited just to Samsung. It has wider implications for the entire cellphone handset industry.

The direct impact on Samsung’s revenues is estimated at around $5.3 billion, which is more than the gross domestic product (GDP) of many small countries. Nomura Securities predicts that killing the Note7 will eventually cost the firm  $9.5 billion in lost sales. Quite a few analysts have predicted that this crisis could cost Samsung a lot more, given the damage to its brand, with estimates ranging from $10 billion to $20 billion. The stock price is down around 10 per cent and Samsung has been mercilessly mocked on social media, what with at least one aircraft evacuation triggered by a phone catching fire and every airport in the world putting up safety notices disallowing the phone on board. In terms of branding, all this hurts sales of other Samsung mobiles. It has also attracted everyone’s attention to other defective consumer durable products that Samsung has had to recall at various stages. These include microwave ovens, washing machines and refrigerators. 

By no means is this the first time a major product recall has happened. There have been innumerable vehicle recalls, for instance. Political activist Ralph Nader first came to prominence by highlighting safety issues in cars — he forced the recall of the Chevrolet Corvair in the 1960s. Toyota has made multiple vehicle recalls for different reasons. Sony batteries and Dell laptops have been recalled. Many drugs marketed by Pfizer, Merck, and Johnson & Johnson among others, have been pulled. Even Mattel toys, including Barbie dolls, have been taken off shelves due to poisonous paint being used. These are all iconic names. Going by that history, Samsung’s brand value will recover even though it has suffered serious damage. 

However, this incident has made many cellphone users wary of new smartphones with enhanced specifications. Reports suggest that Samsung has not yet been able to reproduce the problem in laboratory conditions. This means that Samsung, and the rest of the world, still does not know the cause of the flameouts. It is noteworthy that Samsung is a major component supplier to other cellphone manufacturers; it even supplies several key components for iPhones. In that sense, the Note7 disaster has hurt the brand image of the entire industry. There are multiple other component manufacturers, supplying to different cellphone manufacturers. Until the Note7 fault is isolated and reliably dealt with, the entire industry will be on tenterhooks.