Samsung Electronics’ worst-ever recall could cost the company as much as $17 billion after it halted sales of its flagship Galaxy Note 7 for a second time, spelling an almost certain end for the ill-fated premium model.
Samsung announced the recall of 2.5 million Note 7s in early September following numerous reports of the phones catching fire and on Tuesday the crisis deepened: The company told mobile carriers to stop sales or exchange of the $882 device and asked users to shut off their phones while it investigated new reports of fires in replacement Note 7s.
As the world’s top-selling smartphone company awaits results of probe by U.S. safety regulators, some investors and analysts predict Samsung may scrap the Note 7 and move on to successor models to limit the financial and reputational damage.
“In the worst case scenario, the U.S. could conclude the product is fundamentally flawed and ban sales of the device,” said Song Myung-sub, an analyst at HI Investment Securities.
If Samsung stops selling the Note 7s, that will translate into lost sales of up to 19 million phones, or nearly $17 billion, that the firm was expected to generate during the Note 7’s product cycle, according to analysts including those at Credit Suisse.
That’s a big increase from $5 billion in missed sales and recall costs analysts initially expected Samsung to incur under the assumption that the firm would resume global Note 7 sales in the fourth quarter.
Chances of that now look slim. South Korea’s Hankyoreh newspaper, citing unnamed sources, said on Tuesday Samsung will likely stop Note 7 sales permanently. Samsung did not comment on the report.
“This has probably killed the Note 7 brand name,” said Edward Snyder, the managing director of Charter Equity Research.
“By the time they fix the problem they have to go through recertification and requalification and by the time that happens, they’re going up against the (Galaxy) S8 launch.”
Samsung has already temporarily halted Note 7 production, a source familiar with the matter said on Monday.
That could lead to a write-down in inventory in the event Samsung has to end sales entirely.