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Tim Green

Battery Problem Shortcircuits Samsung’s Battle with Apple

by Tim Green | Dun & Bradstreet Editor

September 19, 2016 | No Comments »

Samsung Electronics could not have picked a worse time for its newest smartphone to catch fire.

The company’s Galaxy Note 7 phone went on sale on August 19. Reports soon surfaced that its batteries were overheating and, in some cases, bursting into flames. There have been reports of injuries and property damage. The problem involves about 2.5 million Samsung smartphones around the world, including about 1 million in the US.

Then came a recall, crippling Samsung’s smartphone sales just as archrival Apple introduced its most recent models, the iPhone 7 and iPhone 7 Plus. Samsung has lost the head of steam it gained earlier in the year and has ceded positive attention, if not sales, to Apple.

Samsung’s muddled recall and replacement process has kept the issue in the headlines. Now the US Consumer Products Safety Commission and similar agencies in other countries have issued official recalls. Users of the Galaxy Note 7 phones have been advised to power them down and turn them in. They’ll get a replacement phone or their money back.

Costly Problem

The battery problem will be costly for Samsung. Replacing phones could cost about $1 billion, according to estimates. Investors have sliced about $10 billion from Samsung’s market capitalization. More importantly, the issue tarnishes its reputation as it was building momentum in the smartphone battle.

This year Samsung’s smartphone sales rose as the sales of Apple’s iPhones posted their first quarters of declining sales in years. Its 2016 second quarter improved on strong sales of the Galaxy S7 and S7 edge smartphones. The Galaxy S7 edge accounted for more than 50% of its mobile phone sales.

The company’s mobile division was its best performer in the second quarter, leading the company to $45 billion in revenue and $3.8 billion in operating profit. The research firm Strategy Analytics reported that in the second quarter Samsung shipped about twice as many smartphones as Apple — 50.5 million to 26 million. Samsung doubled the number of smartphones it shipped from year-to-year.

In its earnings report, made in July, Samsung looked forward to the August release of its new phone. “Looking into the third quarter, the release of a new large-screen flagship smartphone (the Galaxy Note 7) will help to maintain solid sales of high-end smartphones led by the Galaxy S7 and S7 edge,” the company said.

Samsung was poised to add to its lead over Apple with the release of the Galaxy Note 7 in August, beating the iPhone 7 and 7 Plus to market by weeks. Apple unveiled the products on September 7 and started selling them on September 16.

Rejuvenated Apple

The new iPhones have been well received by reviewers despite a lack of great strides in technology or design. The biggest change was the elimination of the 3.5 mm audio jack, pushing users to Bluetooth headphones (see the Bizmology post from Malcolm Gledhill on Apple’s cable cutting).

An initial problem with the new iOS that caused older model phones not to work was quickly fixed. There have been no reports of battery-related problems with the new phones, so far. But they are just now getting into the hands of everyday users.

The fortunes of Apple, which had been derided by critics for lack of product innovation, have risen with the new iPhones. Apple said its early run of phones sold out on release day (a circumstance that can be manipulated). And the company’s stock has strengthened about 10% in the past week.

For its part, Samsung is acting in good faith to make things right with its customers. Samsung Electronics America executive Tim Baxter issued a video apology and said that new Galaxy Note 7 phones will be in stores by September 21.

If customers’ feelings are assuaged, they could well keep on buying Samsung smartphones.

Next time, though, check the batteries.


Tim Green has covered business, technology and science at newspapers and in higher education. At Hoover’s he covers computers and telecommunications. Follow him on Twitter.

Photo courtesy of Karlis Dambrans, used under a Creative Commons license.

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