Samsung has little choice but to scrap the Galaxy Note 7. But that’s only the start of its problems.
The cost of the Galaxy Note 7 recall is astronomical. Dropping the phone means foregoing at least $10 billion revenue now and, maybe, a billion or so in profit.
Then there’s the cost of two product recalls. Carriers and retailers will want some compensation. They’ll use this to squeeze future concessions.
It’s worth remembering profit plunged across the entire Samsung company because the Galaxy S5 phone failed to deliver. This will be worse.
The recall leaves Samsung without one of its two flagship phone product lines at the start of the Christmas selling season. It is the most important quarter of the year for phone sales.
At the moment all the attention is still on the Galaxy Note 7 model. Consumers now know not to buy the phone, carriers and retailers know not to stock it.
Airplane travelers get reminders the phone is dangerous every time they fly. The bad news headlines keep coming. It’s a marketing and public relations nightmare.
The Note 7 damaged Samsung’s reputation
Unless Samsung acts fast, the reputation damage could spill beyond the Galaxy Note 7 brand.
In some respects Samsung is lucky it has two flaghip phone lines. The other line, the Galaxy S7, may even pick up some of the lost business.
It is just as possible sales of the Galaxy S7 will suffer. A poor reputation can be contagious. Some consumers may identify the Samsung or Galaxy name with phones that catch fire and not worry too much about the specific model. That’s how brands work.
And anyway, it could turn out the problem is not the Galaxy Note 7 battery design, but a deeper systematic flaw in Samsung. Maybe the company’s quality control isn’t up to scratch.
If that’s true, then other Samsung product lines, such as tablets, are also in for a hard time.
Samsung has something else to worry about. It is not the only company making Android phones.
Dozens of rivals offer similar alternatives. Despite all the marketing hype, they really aren’t so different. Some rivals will already be ramping up production to meet increased demand.
Most of those Android-making rivals have their own problems. Few are profitable. Huawei aside, those who eke out a profit only make peanuts. Many don’t have much of a future. An upswing in sales thanks to Samsung’s exploding batteries is only going to be a stay of execution.
The saddest aspect of this story is that almost everyone agreed the Samsung Galaxy Note 7 was the best Android phone ever made. All the design, technology and feature stars aligned. We may never see the like again.
Samsung only has itself to blame for the disaster. There were reports of early models catching fire before the launch. When the phones began catching fire after the launch, Samsung blamed its battery supplier. What it should have was get straight to the root of the problem and fix it, even if that meant delaying the launch.