Shares of Samsung Electronics Co fell the most in more than four years after airlines and regulators from the US to Europe warned against the use of its Note 7 smartphones.
US regulators and the company itself warned users of its premium smartphones to immediately turn off and stop charging them. The advisories were issued by the US Consumer Product Safety Commission and Samsung, which are in talks on an official recall of the devices as soon as possible. Aviation authorities around the world have also called on passengers to stop using the devices during flights. About three dozen of the phones, released just three weeks ago, had batteries that caught fire or exploded.
The troubles come at a critical time for Samsung. The company rolled out the Note 7 last month to give it a head start on Apple Inc’s new iPhone, which were unveiled last week. However, that advantage has now disappeared. Samsung shares fell as much as 7.6 percent, on track for their biggest intraday drop since August, 2012. Including a 3.9 percent decline on Friday, Samsung has shed about US$19 billion in market value. Battery-making affiliate Samsung SDI Co fell as much as 6.2 percent to 96,200 won, the lowest on an intraday basis in five months.
“The uncertainty over the Note 7 recall has grown following the tough reactions from the US,” said Lee Seung-woo, an analyst at IBK Securities Co in Seoul.
“Samsung has to settle this situation as early as possible by replacing every Note 7 device in order to reassure customers. In the worst-case scenario, Samsung may have to consider discontinuing Note 7 sales for a time,” Lee said.
The recent introduction of new products by the two leaders of the global smartphone market are critical to their competition, Bloomberg Intelligence analyst John Butler said in an interview.
“Samsung’s troubles, and they’re meaningful at this point, are a positive development for Apple and its competitive position vis-a-vis Samsung,” Butler said. “We’re rolling quickly into the holiday quarter, so Samsung has to move quickly to recall the Note 7 devices with faulty batteries and get replacement units to people who already bought this model.”
The Suwon, South Korea-based company has already announced a voluntary, worldwide recall of all 2.5 million of the smartphones it has already shipped, at a cost to the company estimated at as much as US$1 billion.
On Saturday, Samsung told users in South Korea to stop using the devices and to bring them to the company’s service centers. Customers can rent replacement phones until Note 7’s with new batteries become available on Sept. 19. It was not clear whether the fixed Note 7 models would also be offered elsewhere on that date.
Almost all Consumer Product Safety Commission recalls are done voluntarily in conjunction with a company and the scope of any action on the Note 7 might be identical to what Samsung has already suggested to consumers. Once the agency becomes involved, it triggers additional protections for people. For example, US law prohibits the sale or resale of any recalled item once the commission acts.
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