Explosions in China show Samsung’s Galaxy Note 7 safety problem may be worse than we thought

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Obsession
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After Samsung’ recall of the Galaxy Note 7 spooked investors and airlines, it seemed the one bright spot for the Korean company amidst the chaos might be China. Samsung wasn’t expected to have to recall phones in the world’s largest consumer market because it used a different battery supplier there, ensuring it could still make money in China even as it was losing it elsewhere.

Even though Samsung’s market share in China has been shrinking as locally-made competitors offer cheaper Android phones, it remains a key market for the company—last year it shipped almost 325 million handsets there.

But now there are questions about faulty Galaxy Note 7’s in China, too. Over the weekend, a Chinese Galaxy Note 7 owner reported her device began to explode as she held it her hands, and a second owner suffered a similar accident.

According to the Beijing Times (link in Chinese), a commenter on China’s Reddit-esque Baidu Tieba posted photos of what looked like a charred Samsung Galaxy Note 7. The user claimed that she was holding the phone on her bed, unattached to a charger, when the screen suddenly turned black. The phone then began to shake, and when she threw it across the room, it suddenly caught fire. The report has been widely circulated in Chinese media.

News of the explosions are likely to rattle Chinese consumers. Samsung’s original recall affected ten markets, but Greater China was not one of them. That’s because devices shipped to China and Hong Kong contained batteries made by Hong Kong-based Amperex, while all others contained ones made by Samsung SDI, a sister company of Samsung’s device division.

And up until now, only Samsung SDI batteries have been identified as faulty. Korean media reported that the company switched suppliers as reports of explosions surfaced. Amperex said in a statement (link in Chinese) today that an early investigation suggests that the explosion (the company does not say which) was “not directly related” to products produced by the company. “We estimate that the combustion took place outside the main part of the battery, and there’s a large possibility that external elements caused the combustion.”

But that may not be enough to reassure Chinese buyers. That’s because additionally, last Wednesday (Sep. 14), China’s General Administration of Quality Supervision, Inspection and Quarantine, a state bureau that oversees product safety, announced that Samsung would recall 1,858 Galaxy Note 7 devices in China. This small batch of phones were given to select members of a Galaxy fan club group that received test units (link in Chinese) prior to the phone’s official Sept. 1 launch in China. It’s unclear which type of batteries these had.

The Chinese owner of the exploding Galaxy Note 7 purchased her phone on Chinese e-commerce site JD, rather than directly from Samsung channels that offered the test units. The phones on JD were released as part of the official Chinese domestic launch—not the test launch implicated in the limited recall announced last Wednesday, one person briefed on the matter told Quartz. This increases concerns that Galaxy Note 7 phones sold in China might be susceptible to explosions as ones in other markets.

A spokesperson for JD, which sold one of the faulty phones in question, said it had passed the matter to Samsung for investigation. “We will continue to monitor the situation closely and will work to ensure our customers are fully protected.”

Samsung’s share price tumbled as news of the first recall spread earlier this month, but has been unaffected so far by the China incidents, closing up 2.03% in trading today in Korea.

Samsung originally recalled 2.5 million Galaxy Note 7 devices. Analysts estimate 65% of shipped Galaxy Note 7 devices contained Samsung SDI lithium ion batteries (paywall), while the remainder contained Amperex ones. If the company has to recall its Amperex-powered phones in China, that means it must replace 1.3 million more phones.

No wonder Samsung has begun selling off stakes in supplier companies. On Sunday, it divested itself from four component makers (paywall) including Japanese LCD manufacturer Sharp. The extra cash will help offset the cost of the recall programs, but whether Samsung can regain investor and consumer confidence worldwide remains to be seen.

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