Worst-ever Smartphone Recall Could Cause a $17B Hole in Samsung’s Pockets

In an unprecedented move, South Korean electronics titan Samsung announced that it is officially halting sales and production of its troubled Galaxy Note 7 smartphone following new reports that some of the replacement devices, which had supposedly been repaired were overheating and even exploding.

In an official statement filed with the South Korean stock exchange late Tuesday, Samsung said that it’s working with relevant regulatory bodies to investigate the recent cases involving its comparatively high price flagship device.

“Because consumers’ safety remains our top priority, Samsung will ask all carrier and retail partners globally to stop sales and exchanges of the Galaxy Note7 while the investigation is taking place,” the statement said, adding that the company is asking consumers with either an original Galaxy Note 7 or replacement GN7 to power down and stop using the device.

The Galaxy Note 7 got off to a very promising start a couple of months ago. However, all the problems for Samsung started on August 24, when the first report of its flagship device exploding hit the wires. It wasn’t long before many more followed with users claiming that new handsets would overheat or spontaneously combust while on charge.

Last month, Samsung issued a global recall of 2.5 million Note 7s after several reported incidents in which the device’s lithium-ion battery caught fire.

Samsung’s best strategy now is to move forward and focus its energy in figuring out how to regain trust among consumers, as companies like Apple (NASDAQ:AAPL) and Google-parent Alphabet Inc (NASDAQ:GOOGL) look to capitalise on Samsung’s misfortune with devices like the iPhone 7 and the Pixel.

It is worth noting that the whole debacle is causing Samsung an immediate and significant financial blow. On Tuesday, even before the company had announced the Galaxy Note 7 as a goner, its shares printed an 8% nosedive, the biggest intraday drop since fiscal 2008. According to analysts at Credit Suisse Group (NYSE:CS), Samsung could lose a massive $17 billion from the fiasco. In addition, Nomura predicts that the firm’s mobile division could see its profits plunge by as much as 85% in Q4. There are also concerns that Samsung’s image as a trusted electronics brand could be negatively effected as a result of the handset’s production end.

“With the Note 7, Samsung strengthened its power as a speedy competitor,” Lee Seung-woo, an analyst with IBK Investment & Securities told the NYT. “But one wonders whether it hasn’t raced ahead alone, without helping its component suppliers to catch up.”

On the bright side, this is not by any stretch of the imagination ‘game over’ for Samsung. The multinational company has a current market cap of more than $235 billion and cash reserves of nearly $70 billion. So, it can certainly absorb the impact, regroup and re-position so it won’t ever go through something like this again.

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