Why It’s Time for Samsung to Discontinue the Galaxy Note 7
The Galaxy Note 7 was supposed to help Samsung take on the iPhone. But now, it’s becoming increasingly clear it might need to be discontinued.
A Southwest Airlines (LUV) passenger on Wednesday was traveling from Louisville to Baltimore when the Galaxy Note 7 in his pocket started to overheat. The owner, Brian Green, says he threw the smartphone on the floor when he noticed smoke coming from his pocket. The phone subsequently burned the plane’s carpet and caused some damage to its subfloor. The flight was evacuated and canceled, and the Note 7 was left to investigators.
Given the recent history, that might not be a surprise. However, Green claims that the Galaxy Note 7 he was using a replacement model. Technology site The Verge subsequently checked the smartphone’s unique identifier against Samsung’s device list and found that it was a replacement—not one of the 2.5 million Galaxy Note 7s Samsung needs to replace as part of its recall program.
Samsung launched the Galaxy Note 7 in August in hopes of competing with the then-upcoming Apple iPhone 7 (AAPL). The smartphone was a major improvement over the Galaxy Note 5 (it skipped the Galaxy Note 6 branding), featuring a curved screen, improved performance, and a much larger battery to deliver more power over an extended period. That big battery, however, proved to be a problem after users quickly discovered that it would overheat and in some cases, explode. While Samsung quickly issued a recall, the defective device caused burns to users around the world.
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In a statement last month, Samsung, which is continuing its investigation into what it called a manufacturing problem, said that its replacement Galaxy Note 7 units would be safe and wouldn’t have the same problems as the first run.
Now, though, the events on the Southwest flight seem to tell a different story. If true, they suggest that the Galaxy Note 7 replacements might not be safe, and might need to be discontinued.
“Until we are able to retrieve the device, we cannot confirm that this incident involves the new Note 7,” a Samsung spokesperson told Fortune in a statement in reference to the latest explosion. “We are working with the authorities and Southwest now to recover the device and confirm the cause. Once we have examined the device we will have more information to share.”
Regardless, the publicity damage might have already been done, and it might be time for Samsung to seriously consider discontinuing the Galaxy Note 7 if the latest fire indeed happened on a replacement device.
“Samsung may now be stuck with an expensive and reputation denting second recall,” Mark Johnson, an associate professor of operations management at Warwick Business School, said in a statement. “Having a second recall will be costly and may result in the electronics giant canceling the phone. The latest in a long line of incidents affecting the Samsung Note 7 indicates that there may be much more at fault with the phone than just faulty batteries from a supplier.”
Samsung’s brand was already in free fall after the first round of explosions. A survey from SurveyMonkey last month showed 26% of Note 7 owners were planning to switch to an iPhone. The same survey found just 18% of Galaxy Note 7 owners would opt for a replacement Note 7. A different study published last month by researcher Branding Brand found 34% of customers wouldn’t even consider buying another device from Samsung. Now that there’s a report of another explosion and the possibility of another recall, those figures could grow.
There’s already panic inside Samsung. This week, Reuters cited two Samsung insiders, who said the Galaxy Note 7’s troubles impact its “trust with consumers.” Another said that the problem must be “fixed quickly [or] everybody loses.”
However, Samsung has already tried to fix the problem. The company has recalled 2.5 million handsets and according to its own tally, has recovered the majority of them. It’s also issued apologies, promised an in-depth investigation, and delivered replacements that were supposed to be safe. And yet, there’s still safety fears, and with a new explosion report, no sign of things getting better.
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So why not just discontinue the product, admit the mistake, and be done with it? Obviously that’s not the best option for Samsung, but the company is left with few others. If Samsung is ultimately forced to recall its Note 7 a second time, the damage to its brand—and its Note lineup—could be irreparable. Discontinuing the device is an acknowledgment that maybe Samsung needs to take a step back and reevaluate how it’s operating in a smartphone industry that generates billions of dollars in revenue each year for the company.
Avi Greengart, an analyst at Current Analysis, agrees that a second recall could be damaging to the Galaxy Note 7’s brand. But he stopped short of recommending discontinuing the smartphone, saying that Samsung should know how to fix the problem.
“If it turns out that the fixed Note 7’s are still catching fire, that’s incredibly damning for Samsung’s processes and its brand,” he says. “Still, discontinuing the product is a fairly radical step—of all of Samsung’s phones, the Note 7 has unique capabilities and a loyal customer base. I find it hard to believe that Samsung can build hundreds of millions of phones and can’t properly fix this one.”
But not being able to fix the Note 7 might just be exactly what’s happening. If the second run is prone to explosions like the first, would those “loyal” customers really be willing to go back for a third shot? And what will come of Samsung’s brand?
At this point, if the Southwest incident wasn’t a fluke, it might be best for Samsung to cut its losses and do away with its Note 7. There’s always next year.