Samsung suspends Note7 production amid new fire scare

A Samsung employee works to replace Galaxy Note7 smartphones at a shop in Seoul on Sept 19, 2016. PHOTO: AFP

SEOUL • Samsung Electronics halted production of its Note7 smartphones after customers reported problems with the new devices, the latest blow in a six-week crisis over exploding phone batteries.

Samsung temporarily suspended production of its most expensive phone, a person with direct knowledge of the matter said yesterday, asking not to be identified because the decision has not been made public. The move came after wireless carriers, including T-Mobile US and Telstra, stopped selling Note7s following reports of problems with devices thought to be safe.

Customers have said that replacement Note7s and models with supposedly safe batteries were overheating and catching fire, fuelling concerns Samsung has not solved the problem that led to its initial recall of 2.5 million units. The South Korean company has been engulfed in controversy since the device hit the market two months ago and customers began posting videos of charred and damaged handsets.

"It's an ongoing nightmare," said Mr Bryan Ma, vice-president of devices research for IDC. "You would have hoped that they could have got past this already and moved on. Clearly, it keeps coming back."

Along with T-Mobile, AT&T halted sales of the device in the United States over safety concerns. "Based on recent reports, we're no longer exchanging new Note7s at this time, pending further investigation of these reported incidents," AT&T spokesman Fletcher Cook said in an e-mailed statement on Sunday. Samsung said in a statement yesterday, without elaborating: "We are temporarily adjusting the Galaxy Note7 production schedule in order to take further steps to ensure quality and safety matters."

A Samsung Note 7 ad in Singapore. Replacement Note7s are reportedly still overheating and catching fire, fuelling concerns Samsung has not solved the initial problem that led to its massive recall of 2.5 million units. PHOTO: REUTERS

The company said it will take immediate steps approved by the US Consumer Product Safety Commission if there is a safety issue.

Shares of Samsung fell 1.5 per cent to 1,680,000 won (S$2,078) after closing at a record last Friday.

"It's meaningless to continue producing the Note7," Mr Greg Roh, analyst at HMC Investment Securities, said by phone.

"It may not be able to sell the new Note7s anyhow if the carriers are banning them."

The production suspension raises questions about Samsung's original investigation into the battery problems. The company said the issue stemmed from one supplier, which it had stopped using. "The question is, if they switched the supplier, why is this problem still happening?" asked Mr Ma. "In other words, was it really a supplier issue or is there something else going on?"

The latest imbroglio coincides with mounting pressure from investor Paul Elliott Singer, who this month advocated a break-up of the complex Samsung empire. Mr Singer's Elliott Management - through affiliates Blake Capital and Potter Capital - proposed that Samsung separate into an operating company and a holding company, and dual-list the former on a US exchange.

Some analysts said the Note7 troubles could spill over to other Samsung businesses, including affiliates that make chips and displays. They could also affect Samsung's other major smartphone line. "If Samsung Electronics continues to harm its brand image with Galaxy Note7, this could affect the entire Galaxy S series in the long term," said analyst Song Eun-jeong, who is from HI Investment & Securities.


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A version of this article appeared in the print edition of The Straits Times on October 11, 2016, with the headline Samsung suspends Note7 production amid new fire scare. Subscribe