Samsung pulls the pin on the Galaxy Note 7 but will unlikely suffer permanent damage

Samsung has finally called a halt to its production of the Galaxy Note 7. Following on from its earlier problems with the devices spontaneously setting alight, it seems that the replacement also suffered from the same problem. Samsung has clearly not found out the exact cause of the original cause for the batteries to overheat, even though there was some suggestion that the replacement phones may have been affected by a different issue from their predecessors.

In Korea, I talked to a number of people who didn’t particularly express concern about Samsung’s woes with this particular device. They simply thought it was a problem related to a specific device and so the consequences would be felt by those in the company judged to be responsible for the flaw in the design or the manufacturing.

Whilst it is a massive setback for the company, relatively, they hadn’t shipped that many devices to that many countries, before the problems surfaced. Ultimately, they had little choice but to stop making the phone because regulators in countries like the US would have prevented them from continuing to sell them.

Whilst it may seem that Samsung has prevaricated about what to about the reports of devices exploding, they made an unprecedented decision to replace all of the phones that they had already shipped and an even bigger decision to stop production overall.

At the time of the recall, Samsung had shipped 2.5 million affected phones. In Europe, 45,000 were waiting to be delivered at the time of the decision to stop production.

Samsung contributes a massive 17% of South Korea’s GDP and so decisions about what it does have a large impact on the country and are potentially influenced by the government as much as the management of the company. Within the company, there is also a strong culture of a rigid hierarchy which Samsung has recently sought to change but is held responsible for its inability to move quickly in response to the market and the pressures of extremely tight product cycles.

A design or manufacturing flaw that manifested as the Galaxy Note 7 battery problems, even if they had been known, in all likelihood was not picked up because of this structure and the lack of a way of highlighting this severe an issue to the people who could make the decisions about whether to halt the production process to address the problem.

The question is whether the failure of the Galaxy Note 7 will cause lasting damage to the Samsung brand. In South Korea, the answer is clearly no. People in Seoul that I talked to were clearly unfazed by the incident and simply believed that it was something that wouldn’t happen again with other future devices. In the US and other markets like Australia, those directly effected may be less likely to buy another Samsung device, but it is not clear whether the issues of a very specific model will transfer to Samsung’s products generally.

Much of the future outcome for Samsung will depend on what happens next and whether they can successfully bring out a new phone that has no issues.

Apple’s shares received a boost on the news of Samsung halting production of their phone, with its share price jumping nearly 2%. It isn’t certain however that Apple would benefit from users being concerned about the Galaxy Note 7. It is far more likely that in the short term, users would simply choose another Samsung phone like the Galaxy 7 which is unaffected by battery problems. Even if users were so dissatisfied with Samsung that they wanted to choose another brand, it is more likely that they would choose another android device, even opting to wait until the Google Pixel is available.

It may be fair to ask why Samsung didn’t pick up the problems with the battery during their testing of the devices. Of the 2.5 million devices shipped, there have been around 100 cases of batteries catching fire and so that is essentially 1 in every 25,000 devices shipped. It is not unreasonable that the type of quality testing that they carried out would simply not have picked this problem up with those sorts of odds.

Of course, if someone within the company had actually known about the potential issue and not come forward because of the corporate culture it would have been a different story. But we are unlikely to ever know.