Samsung struggles with critical Note 7 recall
The success of the recall is seen as crucial to Samsung retaining brand trust and loyalty and preventing customers defecting to arch-rival Apple’s new iPhone 7 or cheaper Chinese-made models.
The South Korean electronics giant moved quickly earlier this month to suspend sales of its latest large-screen smartphone and announced a recall of 2.5 million units already sold, after faulty batteries caused some handsets to explode during charging.
Samsung had advised consumers in 10 countries to trade their handsets for temporary replacement phones provided by the firm until it releases new Note 7s.
But many users have snubbed the offer, choosing to wait until the new phones were available, citing the inconvenience of switching devices for an interim period.
And different regulatory practices in different countries — as well as varying reactions from carriers — have caused a degree of customer uncertainty and confusion that is hampering Samsung’s efforts to get the recall behind it as quickly and painlessly as possible.
– No overnight fix –
“It’s not something that can be done overnight,” said a Samsung spokeswoman.
“The process is different for each country because they have different regulations and we also have to talk with the carriers in those countries,” she said.
In an effort to steal a march on Apple, the Note 7 was given an early launch in the key US market, making that a priority for the recall effort.
Samsung is working with the US Consumer Product Safety Commission, but has yet to provide a specific date for replacing returned units.
“We would like the consumers to receive their new phones quickly and easily but the situation is different for each country and we are doing our best in the given circumstances,” the Samsung spokeswoman said.
In a half-page advert carried by major South Korean newspapers on Wednesday, Samsung announced a Note 7 software update that will limit battery recharges to 60 percent of capacity.
It would prevent the phones from overheating, and thus exploding, but would effectively mean a downgrade of the high-end device — and therefore an incentive to turn it in.
The automatic update for South Korean users will take place on September 20, a day after Samsung begins to hand out new Note 7 handsets with fault-free batteries.
– ‘Deep’ apology –
Wednesday’s newspaper ads also carried a message of “deep, sincere apology” and a vow to retain the “love and trust” of Samsung consumers.
The recall comes at a particularly sensitive time, with Samsung’s mobile division finally showing some real momentum after two years of profit growth declines in an increasingly competitive and saturated market.
The degree of long-term damage is still difficult to estimate.
“The company has acted aggressively to address the problem … (but) the recall is likely to reverse improving profitability in Samsung’s IT and mobile communications segment over the next one to two quarters,” credit ratings agency Moody’s said in a statement.
The statement noted that the newly launched iPhone 7 smartphone could provide a tempting alternative to disgruntled Samsung consumers, and said the Korean firm might be forced to increase marketing expenses to regain consumer confidence.
The mobile business accounts for a major share of profits at Samsung, which is the world’s largest smartphone maker but also produces home appliances and memory chips.
Nomura has cut its profit forecast for Samsung’s mobile division in the third quarter by 900 billion won (800 million dollars) to 3.1 trillion won.
“Nevertheless we are still positive on the company’s mid-long term competitiveness and earnings forecast mainly due to semi-conductor and display competitiveness,” Nomura said in a research note.