Samsung's Galaxy Note 7 recall due to battery issues may cost the company about $1 billion.
Samsung launched and released the Galaxy Note 7 in August this year. Just like its predecessors, the Galaxy Note 7 was highly anticipated in the smartphone space. However, 35 customers have reported that the battery of the new Samsung phablet has exploded or caught fire while charging.
The Korean company has been prompt to acknowledge the issue and recalled about 2.5 million Galaxy Note 7 units released in the market. Samsung, as well as carriers in the United States, have suspended sales of the device and carriers are also offering replacement phones until the problem is sorted out. Samsung has also issued an apology statement to its customers.
"We acknowledge the inconvenience this may cause in the market but this is to ensure that Samsung continues to deliver the highest quality products to our customers. We are working closely with our partners to ensure the replacement experience is as convenient and efficient as possible," said Samsung.
The recall of the Galaxy Note 7 has impacted Samsung's sales as well as reputation.
"The potential damage to reputation is far greater than short-term financial losses," says Chang Sea Jin, a professor at the National University of Singapore.
Koh Dong Jin, the head of Samsung's smartphone business, was asked about the financial impact of the battery issue during a press event. Koh Dong Jin did not reveal a figure, but said that it was a "heartbreaking amount.''
Although Samsung has not confirmed the cost of the recall, estimates compiled by Bloomberg from Credit Suisse Group AG, Daishin Securities Co. and Pelham Smithers Associates suggest that the battery snafu with the Galaxy Note 7 may have cost the company about $1 billion.
Reports suggest that Samsung SDI supplied about 70 percent of the Galaxy Note 7 batteries while 30 percent were supplied by Amperex Technology Ltd based in China. Both companies are expected to bear the cost of the recall.
The financial loss for Samsung may not be over. Apple is expected to launch the iPhone 7 and the iPhone 7 Plus on Sept. 7. The Plus variant of the iPhone that sports a screen size of 5.5 inches has rivaled previous Galaxy Note models. The launch of the iPhone 7 Plus is expected to give stiff competition to the Galaxy Note 7.
Customers looking for a new phablet may opt for the iPhone 7 Plus instead of the Galaxy Note 7 because of the battery problem and also because Samsung has suspended sales of the phablet.
Samsung has not confirmed when sales of the Galaxy Note 7 will restart. Only time will tell how badly the battery issue of the Galaxy Note 7 has affected the company's overall smartphone sales.