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Battery Fire Problems in Galaxy Note7 Deals a Blow to Samsung’s Mobile Recovery

Battery Fire Problems in Galaxy Note7 Deals a Blow to Samsung’s Mobile Recovery
Samsung Electronics Co Ltd was forced to delay shipments of Galaxy Note 7 smartphones after reports of exploding batteries which resulted in knocking off of $7 billion of its market value and jeopardizing the planned recovery of its mobile business.
The company told the media on Wednesday that shipments to South Korea's top three mobile carriers had been halted and the shipments had been delayed for quality control testing which spooked investors who drove the stock to two-week lows.
The South Korean giant smartphone maker had pinned their hopes on the Galaxy Note 7 to maintain its strong mobile earnings momentum as new iPhones are expected to be unveiled next week by Apple. But a major blow to those hopes can be dealt with by the faults with the new premium flagship device.
"This is some major buzz-kill for Samsung, especially given all of the hard-earned excitement that products like the Note 7 have been garnering lately. The pending Apple launch puts all the more pressure for them to contain this quickly. The timing of this couldn’t have been worse," IDC analyst Bryan Ma said.
Questions about whether other markets were affected besides South Korea or what problem it was trying to address were n=left unanswered by Samsung.
Sister company Samsung SDI Co Ltd said it had received no information to suggest the batteries were faulty even though it was a supplier of Galaxy Note 7 batteries.
Images and videos of charred Galaxy Note 7s were posted by several people who claimed that the device had caught fire.
"Be careful out there, everyone rocking the new Note 7, might catch fire y'all," one user said in a YouTube clip showing a burnt Note phone.
While shares of Samsung SDI tumbled 6.1 percent, versus a 0.1 percent fall for the broader market, Samsung's shares, which hit a record high of 1.694 million won last week, fell 2 percent.
Samsung would replace the batteries of the affected devices as opposed to giving the users a new device and would soon announce a plan to recall affected Note 7 phones, reported several South Korean media, without citing direct sources. A Samsung spokesman declined to comment on the reports.
If Samsung cannot address the Galaxy Note 7 problems quickly it risks a repeat of last year when production problems for the curved displays for the Galaxy S6 edge model resulted in disappointing sales.
Primarily due to robust sales of the Galaxy S7 and S7 edge devices that it launched in March to critical acclaim, Samsung’s mobile profit is on track to post annual growth for the first time in three years.
Expectations for strong sales in the second half were raised after hee Galaxy Note 7 received similar praise. Samsung has said that it had to delay the launch pf the new handset in some markets due to unexpected demand for the 988,900 won ($882) price tagged device in South Korea.
It now appeared inevitable that Samsung's smartphone average selling price and profits would miss lofty second-half expectations, said HDC Asset Management fund manager Park Jung-hoon.
"Apple is supposed to show off the iPhone 7 next week and this issue has emerged, so the current state of things do not look good," he said.

Christopher J. Mitchell

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