Samsung halts Galaxy Note 7 sales over fire concerns, maybe for good

By Se Young Lee

SEOUL (Reuters) - Samsung Electronics Co Ltd halted sales of its Galaxy Note 7 smartphones on Tuesday and told owners to stop using them while it investigates reports of fires, fuelling expectations the tech giant will scrap the flagship device.

Samsung is now considering permanently halting sales of its flagship smartphones as an option, a source familiar with the matter said, after fresh reports of fires in replacement devices prompted new warnings from regulators, phone carriers and airlines.

The person, who declined to be identified because they were not authorised to speak publicly on the matter, said Samsung had not yet made a final decision. A Samsung spokeswoman said nothing had been decided about future sales plans.

The world's top smartphone maker earlier said it had asked all global carriers to stop sales of the Note 7s and the exchange of original devices for replacements, while it worked with regulators to investigate the problem. The company is offering to exchange Note 7s for other products or refund them.

"Consumers with either an original Galaxy Note 7 or replacement Galaxy Note 7 device should power down and stop using the device," the company said in statement.

Samsung's decision to pull Note 7s off the shelves for the second time in less than two months not only raises fresh doubts about the firm's quality control but could result in huge financial and reputational costs.

Analysts say a permanent end to Note 7 sales could cost Samsung up to $17 billion and tarnish its other phone products in the minds of consumers and carriers.

Investors wiped $18.8 billion off Samsung Electronics' market value on Tuesday as its shares closed down 8 percent, their biggest daily percentage decline since 2008.

The premium device launched in August was supposed to compete with Apple Inc's latest iPhone for supremacy in the smartphone market. Well received by critics, its first problem was a shortage as pre-orders overwhelmed supply.

But within days of the launch images of charred Note 7s began appearing on social media, in the first sign that something was seriously amiss with the gadget. Samsung has since recalled 2.5 million Note 7s due to faulty batteries.

"This has probably killed the Note 7 brand name - who knows if they'll even be allowed to re-release it," said Edward Snyder, managing director of Charter Equity Research.

"By the time they fix the problem they have to go through recertification and requalification and by the time that happens they're going up against the (Galaxy) S8 launch."

South Korea's Hankyoreh newspaper earlier reported the firm planned to end Note 7 sales permanently.

CAUSE UNKNOWN

In addition to the sales pause, a person familiar with the matter told Reuters on Monday that Samsung had temporarily halted production of Note 7s. It was not clear if or when production would resume.

The South Korean firm did not immediately comment on whether it had identified the cause for the fires in replacement devices, although officials in Seoul said it was looking at several possibilities including the batteries.

"It is more difficult to analyse the cause of the accidents this time because of various patterns of the accidents," an official with the Korean Agency for Technology and Standards, which met with Samsung and experts on Monday, told Reuters.

China's quality watchdog said Samsung would recall all 190,984 Note 7s sold in the mainland.

The U.S. Consumer Product Safety Commission said Samsung was making the right decision by halting sales and exchanges of the device.

"No one should have to be concerned their phone will endanger them, their family or their property," CPSC Chairman Elliott Kaye said in a statement.

The U.S. Federal Aviation Administration and South Korea's transport ministry added their voices to concerns from the aviation industry, saying no Note 7s should be used or charged inside airplanes.

Verizon Communications Inc, the largest U.S. wireless carrier, said it may shift marketing away from the Note 7 heading into the critical holiday selling season.

"We have the new iPhone, we're about to launch the new Google Pixel, which is exclusive to us. We've got great phones from Motorola as well," Verizon spokeswoman Kelly Crummey said.

"I think you'll see our marketing focused on those devices because there is certainty on those at this time."

($1 = 1,114.7500 won)

(Additional reporting by Deborah Todd in NEW YORK and Hyunjoo Jin in SEOUL; Writing by Lincoln Feast; Editing by Miyoung Kim and Stephen Coates)