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Samsung’s recall of its exploding Galaxy Note 7 phones is coming at a very bad time for the company

samsung smartphone
Reuters/Kim Hong-ji
Investors aren't worried.
Published This article is more than 2 years old.

Just when it seemed like investors were regaining faith in Samsung, the company’s fortunes are starting to combust.

The South Korean electronics confirmed on Friday (Sept. 2) that it will launch a global recall of its newest smartphone, the Galaxy Note 7, after reports and pictures surfaced earlier this week showing a scorched and melted handset. On Wednesday it said that it had suspended supply of the smartphone to some Korean carriers and delayed shipments for additional testing.

One customer claimed in a YouTube video that his Galaxy Note 7 caught fire just after he unplugged it from the official Samsung charger and attached it to his waist.

As Ars Technica notes, the Galaxy Note 7 is the first Samsung device to carry a USB Type-C socket, and therefore ships with a micro-USB to USB Type-C adapter. This makes pinpointing the cause of the explosion more complicated, as explosions might be caused by faulty batteries, faulty chargers, faulty adapters, or any form of misuse (such as charging the phone with an unofficial third party cord).

It’s not uncommon for new electronic devices to occasionally explode due to battery mishaps, though global recalls are rare. For Samsung, however, the timing of the combusting phones is not ideal, as it threatens to reverse a recent up-trend for the company.

Samsung had been suffering waning sales due to competition from Chinese smartphone makers such as Xiaomi, Huawei, and Oppo. However, it recently logged its most profitable quarter in two years for the three-month period ending in June, thanks to strong sales of the Galaxy S7. Operating profit in its mobile division jumped 57% to 4.32 trillion won ($3.86 billion) in the quarter. The company’s stock price has also been on a tear in the past year, hitting an all-time high in August.

But that enthusiasm could easily cool again. Samsung Electronics’ lost about $7 billion in market cap after news of the shipment delays was announced on Wednesday, but its share price clawed back some gains on Friday. Still, the macro trends causing Samsung’s earlier slide, such as the commoditization of Android smartphones, remain in place. As perhaps the only Android vendor with a brand name comparable to Apple’s, every new device launch must go off without a hitch—especially as its Cupertino rival is set to unveil the iPhone 7 next week.

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