Fighting fires: Samsung struggles with Note 7 recall damage

SEOUL - Heated meetings, sacrificed holidays and teams monitoring social media round-the-clock to track whether there have been any new smartphone fires: Samsung Electronics is still desperately trying to limit the damage of a record global recall announced more than a month ago.

Samsung said most of the fire-prone Galaxy Note 7s have been recovered in major markets, including the United States and South Korea.

But the trouble is not over for either South Korea's largest listed company or mobile division chief Koh Dong-jin, who bowed in a public apology last month, less than a year into the job.

Samsung's hopes of finally getting ahead of the crisis took a knock on Wednesday. A replacement model began smoking inside a US plane on Wednesday, the family that owns it said, prompting fresh investigations by safety regulators.

And on top of that, Samsung is being pressured by one of the world's most aggressive hedge funds, Elliott Management, to split the company and pay out $27 billion in a special dividend.

UNLUCKY TURN

Ahead of the Note 7's August launch, Koh told other executives how lucky he was: taking charge of the world's largest smartphone business just before it began to reverse two years of declining sales and market share.

Instead, he was soon weathering international aviation bans on the phone, online jokes and criticism over Samsung's handling of the process. It initially wiped almost $16 billion off the company's market value.

The crisis is worse than any other the company has faced, said one Samsung insider, who declined to be named due to the sensitivity of the subject. "It directly impacts our products, our brand, and trust with consumers," this person said.

Samsung told Reuters in a statement it was not thinking about management or organizational changes, and is focused on the Note 7 replacement process.

Samsung insiders say that the unassuming Koh needs to get sales moving again so that the company can salvage the fourth quarter and defend market share against Apple Inc. and other rivals.

"If this doesn't get fixed quickly, everybody loses," said a second Samsung source, who didn't want to be named due to the sensitivity of the issue, adding that as yet there was no finger-pointing at Koh or other executives.

TV ads for the Note 7 resumed in South Korea last week, with additional incentives for those buying the device in October.

"We will give Note 7 all the support we were going to give it in the first place," David Lowes, Samsung's chief marketing officer in Europe, told Reuters. "There is no backing away from it."

TOO MUCH, TOO SOON?

Some of the toughest criticism levelled at Samsung has been over its fumbling of the recall.

It warned affected users to immediately turn off their phones only after the same warning was issued by the U.S. consumer protection agency. The regulator criticized Samsung for not following proper recall procedures.

Some consumers also complained about the replacement phones, either saying they lose power too quickly or run too hot.

In China, where Samsung says its Note 7 uses safe batteries, some users claimed their phones caught fire, while it was forced to delay resuming sales in South Korea due to a slow recall progress.

Eric Schiffer, brand strategy expert and chairman of Reputation Management Consultants based in Los Angeles, said Samsung needs to woo its customers.

"They need to be very transparent. Invite customers who have been affected to the plants...let go of whoever was in charge of this debacle, and accept responsibility and show goodwill by sending new phones, giving discounts - anything to show the importance of the customer relationship," he said.

Samsung has formed a dedicated team of public relations staff to speed up decision making and contain damage, the sources inside the company said.

"We share information instantly and far more widely than usual. We try to reply more promptly," said one of them, who noted how complex it was to deal with a recall across 10 nations spread across the globe.

Samsung employees say the recall has dominated internal meetings since the Sept. 2 announcement, whether it be efforts to get the recalled phones off the streets or deal with a continued stream of claims and reports of damages or problems.

Long hours, weekends and cancelled tie off are commonplace. The long Korean thanksgiving holiday - the biggest holiday of the year - coincided with the U.S. consumer protection agency's mid-September recall of 1 million Note 7 phones.

SLEEPLESS NIGHTS

Koh, 55, is a Samsung veteran with previous roles in human resources and research & development. His elevation had been a shot in the arm for the mobile business, company insiders said, as he boosted morale by delegating more responsibility to subordinates and stressing a bottom-up approach.

At a Galaxy S7 launch event in March, he confessed to sleepless nights agonizing over how to rejuvenate a business battling falling profits and market share losses to Apple and others.

With signs of a recovery - first-half mobile profits grew by nearly half - Koh had started to focus more on how to ensure steady long-term profit growth, according to a person familiar with his thinking.

That all changed with reports of battery fires weeks after the Note 7 launch.

Missed sales and recall expenses could cost Samsung nearly $5 billion this year, analysts say. The risk to its brand is as yet unquantifiable.

It has been particularly painful because many insiders thought the Note 7 could be a landmark product. Pre-orders for the 988,900 won ($895) device were stronger than expected, and the recall cost Samsung a month-long sales window before Apple launched its new iPhone.

The latest twist created by activist fund Elliott may be unwelcome to Samsung's founding Lee family, which still controls the company through a complex web of cross shareholdings.

However, for investors generally it has been a shot in the arm as Samsung shares have recovered to be well above the pre-recall levels and hit all-time highs on Thursday.

source: www.abs-cbnnews.com

US tells consumers to stop using fire-prone Samsung phones

SEOUL/NEW YORK -- A U.S. government safety agency on Friday urged all consumers to stop using Samsung Galaxy Note 7 phones, which are prone to catch fire, and top airlines globally banned their use during flights.

Following reports that the phones' batteries have combusted during charging and normal use, the U.S. Consumer Product Safety Commission said it was working on an official recall of the devices and that users should turn them off in the meantime.

Samsung Electronics Co Ltd said it was working with the agency. It voluntarily issued a recall last week for 10 markets including the United States, and it was expediting shipments of replacement phones to customers.

The U.S. government action heralds more fallout for the South Korean manufacturer, which may take a financial hit from the recall and lose customers who are concerned about the quality of its flagship phones.

For Samsung, which prides itself on manufacturing prowess, the scale of the recall is expected to be unprecedented. Some 2.5 million of the premium devices have been sold worldwide, the company has said. Its shares closed down 3.9 percent on Friday.

Samsung said users in the United States can exchange their phones for one of several models and receive a $25 gift card.

"The cost of the recall is going to be astronomical," said product liability expert and chief executive officer of Real-World Forensic Engineering, Jahan Rasty. "They have to compensate people, fix the problem and give them a revised version of the product that doesn't have the same manufacturing or design defect.

"The longer this story lingers, the more it will etch itself in people's minds," he said.

AIRLINE BANS

One pain point is that the devices are now off limits in a typically high-use setting: aboard planes.

Aviation authorities and airlines from North America to Europe and Asia have issued bans or guidance on the phones. On Thursday, the U.S. Federal Aviation Administration said travelers should not use or charge them while in the air, or stow them in checked luggage.

That prompted the world's three largest airlines by passenger traffic - American, Delta and United - to start telling passengers at the gate and on board aircraft to keep the phones switched off until they deplane.

While experts say the bans may be tough for airlines to enforce, they nonetheless may deter would-be customers of the Note 7 in addition to annoying existing customers.

That's because airlines have increasingly made movies and TV shows available free for streaming on smart devices in flight, to avoid the cost of installing new screens on seat-backs. For now, Note 7 customers are cut off from this entertainment.

This is "a huge black eye for Samsung," TECHnalysis Research President Bob O'Donnell said.

Companies ranging from Singapore Airlines Ltd and Qantas Airways Ltd to Air France KLM SA have instituted similar bans on the device.

They are the latest in ongoing efforts in the airline industry to manage the use of lithium-ion batteries, which are known to combust and are used in many devices, from phones and laptops to toys.

Top airlines banned hoverboards during the Christmas holiday season in 2015. Earlier this year, the U.N.'s aviation agency prohibited shipments of lithium-ion batteries as cargo on passenger planes.

A January report from the FAA said at least 171 incidents of smoke, fire, extreme heat or explosion involving batteries have occurred since 1991.

In some instances, they have caused emergency landings, as when a camera short-circuited and started a small fire in the overhead bin of an American Airlines flight in September 2013. Injuries were rare, the report said.

(Reporting by Se Young Lee in Seoul and Jeffrey Dastin in New York; Additional reporting by Victoria Bryan and Deborah Todd; Editing by Tiffany Wu and Cynthia Osterman)

source: www.abs-cbnnews.com