Samsung axes Note 7, faces billions in losses

Samsung has bowed to the inevitable and axed its Galaxy Note 7 smartphone.

The move comes after a number of replacement units caused problems, including one that burned carpet on a US flight (see below) and yesterday afternoon, the first reported instance of Note 7 overheating and catching fire in New Zealand. It was a Spark customer whose phone ignited; Spark executive Jason Paris says the customer was unharmed. The phone was immediately sent to Samsung.

Yesterday, Samsung announced a temporary production halt. Overnight NZ time it said the Note 7 has been "permanently discontinued." The announcement came shortly after Korea's finance minister said the country's exports would be hurt if Samsung did not scrap the problem phone altogether.

The company is now counting the cost.

There is the expense of recalling 2.5 million units of the $1500 handset, including more than 50,000 across Australia and New Zealand, plus the expense of the botched replacement programme. Forbes estimated the cost of the initial recall alone was just under $US1 billion.

But there is the much greater cost of the brand damage, which is harder to quantify – although investors gave it a shot overnight as Samsung's shares on the Korea Stock Exchange were driven down 8%. It was the company's biggest one-day fall in nearly a decade, and it wiped around $US17 billion from its market cap.

Reputational damage will continue. A Wall Street Journal report says Samsung is considering axing the Note 7 series altogether to limit the fall-out.

Already, there is a lot of pop culture mess to clean up, from internet memes to a new add-on for the hit video game Grand Theft Auto that lets owners use the Note 7 as a weapon (scroll down for a clip).

Consumer NZ chief executive Sue Chetwin says Samsung now needs to explain what went wrong with the Note 7, and the replacement units, to restore confidence in its brand and stop a spillover effect hurting its other product lines.

On that front, there is already trouble in the US with one of Samsung's washing machines allegedly catching fire (an issue covered by Consumer here last year after a Samsung washing machine caught fire in South Auckland).

Stop using your Note 7 immediately
Yesterday, Samsung issued a worldwide alert, telling Note 7 users to power down their phones and stop using them. Telcos worldwide were asked to stop selling the phone and issuing replacement units – although Spark, Vodafone and 2degrees had already suspended sales as they sought more information from Samsung.

Spark immediately offered a full refund or a replacement handset from one of Samsung's other ranges. 2degrees and Vodafone came onboard later in the day with the same offer.

Consumer NZ: all Note 7 customers entitled to full refund
Amid the initial mixed messages, Consumer's Ms Chetwin told NBR Radio the situation was crystal clear: The Note 7 was unfit for purpose and owners of the original, or a replacement unit, were entitled to a full refund or replacement under the Consumer Guarantees Act. Retailers have a responsibility to oversee a refund or replacement.

Ms Chetwin calls the episode a "total fiasco." Neither has she been impressed by slow communication, which she says "does seem to be typical of Samsung. It was the same with the washing machines they had that were catching fire. There was a lot of confusion around that." 

Samsung has repeatedly refused to say how many Note 7s were sold in New Zealand or how many were involved in the recall and replacement programmes.

Its public statements have trailed those of Spark, Vodafone and 2degrees, who have repeatedly had to tell media and customers they are seeking more information from the company.

We have ignition
The Note 7 was launched on August 19. It was withdrawn from sale on September 2 following at least 26 reports of burns and 55 of property damage related to battery overheating incidents, according to the US government's recall notice.

Handsets were recalled, then replacement units issued on September 21.

But on Monday, Samsung announced a "temporary" production halt.

The news follows an October 6 incident that saw a replacement Note 7's battery melt down and burn through the carpet on the floor of a plane (scroll down for pics).

Southwest Airlines flight 944 from Louisville to Baltimore was evacuated while still at the gate because of a smoking Note 7, according to a report by The Verge.

The site's staff spoke to the owner of the Note 7, Brian Green.

He confirmed that he had picked up the new phone at an AT&T store on September 21 (the day the first replacement units became available; the initial run of Note 7s were pulled from shelves on September 2), and a photograph of the box shows the black square symbol that denotes a replacement Note 7. Mr Green also said it had a green battery icon, again signifying it was a replacement phone (Note 7s from the initial production run now display an on-screen warning message instead of the green battery icon).

According to the Verge's account, Mr Green said that he had powered down the phone as requested by the flight crew and put it in his pocket when it began smoking. He dropped it on the floor of the plane and a "thick grey-green angry smoke" was pouring out of the device. His colleague went back on to the plane to retrieve some personal belongings and said that the phone had burned through the carpet and scorched the subfloor of the plane.

ABOVE: Brian Green's Note 7 aboard the Southwest Airlines flight. The black square denotes it is a replacement handset.

Below: The Note 7 has become a pop-culture phenomenon, if not quite the kind Samsung wants. In this Grand Theft Auto mod, the Galaxy phone is deployed as a weapon: