It's a wrap for the Galaxy Note 7.
In the space of one day, Samsung has gone from saying it was “temporarily adjusting" the phone's production schedule, to permanently ending it. The company has taken the unprecedented step of scrapping its latest, flagship line of phones after a spate of battery fires sparked a botched recall of 2.5 million units, deeply damaging the company’s reputation and the Galaxy brand name.
Samsung’s decision to kill off the Note 7 caps a dramatic few months for the company. It had briefly enjoyed rave reviews for the $880 phone before reports emerged that the batteries inside the devices were spontaneously overheating and catching fire. (Ironically, Samsung used to make its Galaxy phone batteries removable, but stopped the practice in 2015 with the Galaxy S6.)
Tuesday's announcement sent Samsung’s shares down by 7.5% in Seoul, wiping out many of the gains the stock has made over the last month over a separate proposal by a U.S. hedge fund to restructure Samsung.
“Taking our customer’s safety as our highest priority, we have decided to halt sales and production of the Galaxy Note 7,” the company said in a filing with South Korean regulators.
Already more than a month ago, the U.S. Consumer Product Safety Commission urged all consumers who owned a Note 7 "to power them down and stop charging or using the device."
Having launched the phone in August, Samsung soon afterwards issued a massive global recall of the phones. When replacement devices started catching fire too, America's top carriers announced one-by-one last weekend that they were halting sales and exchanges of the device.
Though the number of defective units were in a small minority, the potential for danger was high: earlier this month Kentucky resident Michael Klering told a local television news station that he'd woken up at 4am to find his week-old Note 7, a replacement unit, had caught fire and filled his bedroom with smoke.
Klering was later admitted to hospital with smoke-induced acute bronchitis, and told news media that he was considering legal action against Samsung.
In another incident, a Southwest Airlines flight in Louisville, Kentucky was evacuated when a passenger's replacement Note 7 began emitting smoke.
Samsung's announcement to end production of the Note 7 comes less than 24 hours after it said it was “adjusting its production schedule to take further steps to ensure quality and safety matters.”
It also comes at a trying time for Samsung. Not only is it dealing with the radical demands of activist shareholder Elliott Management Corp., it's also in the midst of a Supreme Court showdown with Apple.
The court case is a penultimate decision that stems from Apple's 2011 lawsuit against Samsung for patent infringement. After a California jury decided in 2012 to award Apple $400 million in damages, Samsung appealed the decision, and now the Supreme Court will consider how much of those damages Samsung should pay.
Long term, the court damages will be minor compared to how much scrapping the Galaxy Note 7 will cost Samsung. Killing the Note 7 means Samsung will lose potential sales of 19 million phones, or nearly $17 billion, which the company was expected to make during the device's product cycle, according to Credit Suisse analysts cited by Reuters.
Samsung has around $70 billion on its balance sheet, so these are costs that it can absorb. But the bigger problem for the company, which derives around half its profits from its mobile division, will be the impact of the Note 7 crisis on its reputation, and the Galaxy brand.
That's something Apple will surely be able to capitalize on this holiday season with the recent release of its iPhone 7, as will Google, with the launch of its new Pixel smartphone.
Whether Samsung will be able to regain the trust of consumers with its next line of flagship phones is another matter.
