By Se Young Lee | SEOUL
Samsung Electronics Co Ltd (005930.KS) halted sales of its Galaxy Note 7 smartphones on Tuesday and told owners to stop using them while it investigates reports of fires, fuelling expectations the tech giant will scrap the flagship device.
Top U.S. and Australian carriers on Monday suspended sales or exchanges of the Note 7s, while aviation authorities banned passengers using the phones, after smoke from a replacement device forced the evacuation of a passenger plane in the United States last week.
The world’s top smartphone maker said it had asked all global carriers to stop sales of the Note 7s and the exchange of original devices for replacements, while it worked with regulators to investigate the problem.
“Consumers with either an original Galaxy Note 7 or replacement Galaxy Note 7 device should power down and stop using the device,” the company said in statement.
Samsung’s decision to pull Note 7s off the shelves for the second time in less than two months not only raises fresh doubts about the firm’s quality control but could result in huge financial and reputational costs.
Investors wiped 14.7 trillion won ($13.2 billion) off Samsung Electronics’ market value at mid-day trade on Tuesday as shares tumbled 7 percent to touch their 2-week low.
The premium device launched in August was supposed to compete with Apple Inc’s (AAPL.O) latest iPhone for supremacy in the smartphone market. Well received by critics, its first problem was a shortage as pre-orders overwhelmed supply.
But within days of the launch images of charred Note 7s began appearing on social media, in the first sign that something was seriously amiss with the gadget. Samsung has since recalled 2.5 million Note 7s due to faulty batteries.
“This has probably killed the Note 7 brand name – who knows if they’ll even be allowed to re-release it,” said Edward Snyder, 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 did not immediately comment on whether it was considering ending Note 7 sales permanently or whether it had identified the cause for the fires in replacement devices. The company is offering to exchange Note 7s for other products or refund them.
A person familiar with the matter told Reuters on Monday Samsung had temporarily halted production of Note 7s and Samsung said it had adjusted shipments of the phones. It was not clear when production levels may be restored.
The Korean Agency for Technology and Standards met with Samsung Electronics and experts on Monday afternoon and “confirmed the possibility of defects in the new (Galaxy Note 7) product,” the agency said in a statement on Tuesday.
“Samsung is investigating the case in various aspects,” including the batteries and other possible causes, an official at the agency told Reuters.
“It is more difficult to analyze the cause of the accidents this time because of various patterns of the accidents.”
The U.S. Consumer Product Safety Commission said Samsung was making the right decision by halting sales and exchanges of the device.
“No one should have to be concerned their phone will endanger them, their family or their property,” CPSC Chairman Elliott Kaye said in a statement.
“While we continue our active investigation into reports of phones overheating and burning in multiple states, consumers should power down and stop using all Galaxy Note 7s. This is the safest course of action.”
The U.S. Federal Aviation Administration and South Korea’s transport ministry added their voices to concerns from the aviation industry, saying no Note 7s should be used or charged inside airplanes.
Verizon Communications Inc (VZ.N), the largest U.S. wireless carrier, said it may shift marketing away from the Note 7 heading into the critical holiday selling season.
“We have the new iPhone, we’re about to launch the new Google (GOOGL.O) Pixel, which is exclusive to us. We’ve got great phones from Motorola as well,” Verizon spokeswoman Kelly Crummey said.
“I think you’ll see our marketing focused on those devices because there is certainty on those at this time.”
Shares in Samsung were down 7 percent as of 0325 GMT, compared with a 1 percent fall for the broader market, after touching their lowest level since Sept. 28.
Apple shares, in contrast, hit their highest in 10 months on Monday on expectations the iPhone maker would benefit from its rival’s woes.
($1 = 1,114.7500 won)
(Additional reporting by Deborah Todd in NEW YORK and Hyunjoo Jin in SEOUL; Writing by Lincoln Feast; Editing by Miyoung Kim and Stephen Coates)