Samsung Might Recall the Galaxy Note 7 As Phones 'Catch Fire'

Tech giant Samsung Electronics (SSNLF) is considering a recall of its new flagship Galaxy Note 7 devices amid reports that some of the premium phones are catching fire due to battery problems, a person familiar with the matter said on Friday.

The person did not comment on the schedule or scope of a recall but South Korea’s Yonhap News Agency, citing an unnamed Samsung source, said the company would announce a “global” recall during a press briefing at 5 p.m. (0800 GMT).

Samsung declined to comment on any recall plan for the high-end gadget, which has been the subject of online complaints from users claiming their phones had caught fire while charging.

While analysts expect the Note 7 problems to be resolved quickly, ongoing major problems could derail Samsung’s mobile recovery after a string of product successes had reversed the smartphone leader’s declining market share.

The South Korean firm has pinned its hopes on the Note 7 to maintain strong sales momentum in the second half against stiffening competition from the likes of Apple Inc, which is expected to release its latest iPhone next week.

“They need to nip it in the bud right now. The last thing they want is for memes to be spreading on the internet associating the Samsung name with an exploding battery or injury,” IDC analyst Bryan Ma said.

On Wednesday Samsung said it had halted supply of the new phone to the top three South Korean carriers and that shipments were being delayed as it conducted additional quality testing.

It did not elaborate on any problems it may have found with the gadget, which was launched in South Korea and other markets on Aug. 19 and has been generally well-received by critics.

Investors stripped about $7 billion off Samsung Electronics’ market value in response to the shipment delays on Thursday, but sentiment appeared to have recovered in Friday trading. The shares rose 0.6% compared with a 0.3% gain for the broader market.

SHIPPING DELAYS

South Korea’s Yonhap News Agency reported separately that Samsung Electronics had pushed back the Note 7’s launch in key European markets such as Britain and France. Shipments to the United States appear to have halted as well, Yonhap said, without citing a direct source.

Samsung said in a statement to Reuters it was “conducting a thorough inspection” with its partners on the Note 7 and would share its findings as soon as possible. The company did not immediately comment on Yonhap’s report.

Credit Suisse said a recall or major shipping delays could wipe 1.5 trillion won ($1.34 billion) off the firm’s 2016 operating profit estimate of 30.2 trillion won.

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But the brokerage said this was the “absolute worst case” scenario and was unlikely to materialise, as it expected the firm to resolve issues with the phone before the fourth quarter.

Hyundai Securities also said in a report released on Thursday that the Galaxy Note 7’s problems should be resolved within a “few weeks”. The brokerage retained its third-quarter operating profit forecast of 8.5 trillion won.

The mobile division accounted for about 54% of Samsung Electronics’ January-June operating profit of 14.8 trillion won.