Just a few weeks ago, everything was very exciting for Samsung Electronics’ mobile division. Mainstream media, tech blogs, reviewers and analysts were all in praise for the latest flagship; Galaxy Note 7 – leading to higher sales forecasts and soaring expectations. Its initial sale crossed two million units mark and was on the track to be declared the hottest gadget of the year 2016.
However, a series of the battery explosion incidents changed the things overnight, forcing the company to, first halt its sales and then go for the biggest recall in the modern telecom history. Samsung has confirmed the development on its website and has offered a replacement program for the 2.5 million Note 7 owners. The recall itself is a very significant development, and will cost the company around $900million to $1bn. If these calculations are accurate, the estimated impact represents around 5 percent of the company’s projected net income.
Conversely, Apple started off with a few bad News. First came from Brussels, where the European Commission ordered it to pay Ireland unpaid taxes of up to 13 billion euros ($14.5 billion), declaring it as illegal state aid for the company. The other news came from UAE, where an Arab activist reported hacking attempt – and is stated to have been carried out using a hitherto unknown espionage software. It led the company to issue an immediate upgrade of its mobile operating system.
In addition to this, Apple was observing mixed reviews from analyst and customers, about its upcoming iPhone 7 (already launched). Moreover, Note 7’s successful release had overshadowed everything for the iPhone, which has already lost 2% market share this year.
However, the battery explosion incident has changed everything. On one hand, Samsung is being criticized for the battery flaw while on the other hand, the whole media coverage is now set for the iPhone release.
Should we assume that Samsung has gifted its success to Apple? Or that, Note 7 will not be able to help the company meet its growth targets?
Though there is big uncertainty about the future and analysts seem cautious, still there is no evidence to prove that Note 7 will now be a total failure for the company or it’ll add more glamor to iPhone’s latest release.
The battery inflammation incidents were quite disappointing for Samsung and equally for its loyal fans; however, the recall offer is being seen as a strategic tactic to give them a replacement.
According to the official release; customers can either replace their Galaxy Note 7 with Galaxy S7 or 7 edge – and the company pays the price difference OR the customers return the Note 7 and get a replacement within a week. In addition to this, Samsung is also offering a $25 gift card to the customers.
As a gesture of appreciation, consumers will receive a $25 gift card or bill credit from select carrier retail outlets when choosing a Galaxy S7 family device or the Galaxy Note 7 within the exchange program.” Reads the official press release.
Will it Impact Sale or Revenue?
Wall Street Journal has quoted a few analysts, mainly Peter Yu from BNP Paribas, who still believe that this battery issue will not hit the company in the long-run.
According to Mr. Yu: “Samsung lost a great window of opportunity to boost its momentum before Apple’s new smartphone release, but it won’t ultimately hurt Samsung. The company may sell a few million fewer phones, but it didn’t lose its brand image from the global recall, and that’s what matters in the long run.”
Another reason that supports Mr. Yu’s claim is the fact that Samsung has already shipped its flagship Galaxy devices (S7 & S7 edge), which are still earning the company a decent revenue. In July, Samsung reported its most profitable quarter in nearly two years as high sales of the smaller flagship Galaxy S7 helped boost sales and lift margins.
Except for Note 5, all Note series devices were less popular than their small-screen peers from Samsung. With the massive popularity of small screens this year, the company was aiming to boost its growth further with Note 7. This battery fiasco will lead to the missed opportunity, but analysts still believe it to attract good sales.
Apple, on the other hand, is already under pressure for a couple of reasons. It is consistently losing market share in the phones and tablets business, in the US market as well as worldwide. We are yet to hear any major software or hardware changes in iPhone 7, other than home button’s removal.
The initial review of iPhone 7 suggests it to be a competitor of S7 as it lacks some key features offered in Note 7. For example, IRIS scanning, larger storage, longer battery life, and an hour long water resistance, all of them are enough to give Note 7 a clearer edge over new iPhone.
What Led to the Note 7 Battery Inflammation?
At least two major strategic issues have been identified that may have led to the Note 7 battery debacle. Number one is Samsung’s over-reliance on its subsidiary – Samsung SDI – for the supply of batteries. Samsung SDI is claimed to have supplied up to 70% of batteries used in the Galaxy Note7, while the remaining were provided by Hong Kong-based Amperex Technology – a subsidiary of Japan’s TDK Corporation.
Interestingly, the inflammation incidents have occurred only in those regions where Samsung SDI’s supplied batteries were used. The battery manufacturer has not given any official word on the reasons, but it is believed that the latest trend of “fast-charging” may have contributed to the inflammation incidents. Some analysts consider fast-charging as a threatening trend since it compromises quality and endangers user security.
China’s Oppo has obtained over 128% Year-on-Year growth with the promise of fast-charging. Their entire marketing push was based on the slogan: “charge your phone for five minutes, talk for two hours.”
Had Samsung fallen into the same trap or it just over-relied on a single supplier (own subsidiary) to save cost? Time will tell the real reasons behind the recent debacle, but one thing is sure, it has raised question marks on the device, fast-charging batteries, and some unhealthy practices in the smartphone industry.