Galaxy Note 7 recall could cost Samsung more than $1 billion, Bloomberg says

Samsung’s decision to replace 2.5 million Galaxy Note 7 smartphones following reports of at least 35 batteries exploding could wind up costing the company $1 billion USD, according to analysts contacted by Bloomberg News.

Though steep, it will be a small price to pay to maintain the integrity of Samsung’s brand, the analysts say.

In its official Sept. 2 statement, the company called the expense an “annoyance,” while the head of Samsung’s smartphone business, Koh Dong Jin, called the price a “heartbreaking amount,” according to Bloomberg, though the company has not released any numbers.

Bloomberg said that Credit Suisse Group AG, Daishin Securities Co., and Pelham Smithers Associates all estimated the recall would cost around $1 billion USD or less, which it noted would represent less than five per cent of Samsung’s projected net income of 23 trillion won ($20.6 billion USD) this year.

Chang Sea Jin, a professor at the National University of Singapore, told the publication that the potential damage to Samsung’s reputation far outweighed any short-term financial losses, while IDC analyst Bryan Ma said that if Samsung addressed and immediately turned around the problem, it was unlikely to see any long-term impact.

Reports that the Note 7’s 3,500 mAh battery was prone to heating up and exploding began surfacing early last week, with Samsung conducting an investigation that it said resulted in the identification of a “battery cell issue” on Sept. 2, though it did not elaborate further.

The subsequent recall has extended to 10 markets around the world, including Canada, with carriers including Bell, Rogers, Telus, Koodo, MTS, and SaskTel immediately announcing they would collaborate with Samsung to replace the phones immediately and would not be selling new ones until further notice.

Interestingly, the batteries themselves were manufactured by a division of Samsung, Samsung SDI Co., which when approached by the Wall Street Journal acknowledged that it was a supplier of batteries used in Galaxy Note 7 phones, but declined to comment further on its role or the impact the recall could have on its business.

The company was also listed as an Apple supplier in 2016, according to the WSJ, and while it declined to comment when asked if it currently supplies batteries to Apple, an Apple spokeswoman told reporter Eun-Young Jeong that the latter company does not use the same battery cell type as the Note 7 and is unaffected by its defect.

While the majority of carriers are simply inviting Canadian Note 7 owners to visit their stores to exchange their phones, others who would like more information may call 1-800-SAMSUNG to reach Samsung directly.

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Jim Love, Chief Content Officer, IT World Canada

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Eric Emin Wood
Eric Emin Wood
Former editor of ITBusiness.ca turned consultant with public relations firm Porter Novelli. When not writing for the tech industry enjoys photography, movies, travelling, the Oxford comma, and will talk your ear off about animation if you give him an opening.

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