Galaxy Note 7 Recall Saga Drags Samsung Shares Down

Samsung shares plunged Monday after the South Korean electronics giant urged global consumers to stop using its Galaxy Note 7 smartphone due to a spate of exploding batteries that raised alarm around the world.

Stepping up its warnings, the world's largest smartphone maker on Sunday told Galaxy Note 7 users worldwide to immediately turn the device off.

Samsung Electronics on September 2 had announced a recall of its oversized "phablet" after faulty batteries caused some handsets to burst into flames during charging.

(Also see: Samsung Galaxy Note 7 Recall: Here's How to Check If Your Unit Is Safe)

Since then, airlines and air safety agencies around the world have warned passengers against using them on flights. The US Consumer Product Safety Commission Friday urged Galaxy Note 7 owners to stop using the device.

Shares in the firm - South Korea's largest by value - dropped 7 percent to close at KRW 1.46 million ($1,318 or roughly Rs. 87,469) on the Seoul stock market -- the lowest in two months.

It was the biggest daily drop in the firm's share price so far this year and shaved about KRW 15 trillion (roughly Rs. 89,865 crores) off the firm's total value.

"The whole situation over Samsung is becoming more serious and complicated as more state authorities around the world are advising nationals to stop using the Note 7," said Hwang Min-Sung, an analyst at Samsung Securities.

(Also see: US FAA Warns Airline Passengers Not to Turn On Samsung Galaxy Note 7 Phones)

The fallout from the recall - which involves 2.5 million handsets sold so far in 10 countries - may slash the firm's profit later this year by more than KRW 1 trillion, he warned.

The recall - the first involving Samsung's flagship smartphone - dealt a major blow to the firm's reputation at a time when it faces a growing challenge in all market segments.

(Also see: Samsung Galaxy Note 7 Recall May Cost Company as Much as $1 Billion)

Samsung, increasingly squeezed by Apple's iPhone in the high-end market and Chinese rivals in the low-end segment, launched the Galaxy Note 7 earlier than expected - ahead of the September 7 launch of the iPhone 7.

The mobile business accounts for a major share of profits for Samsung, which also produces home appliances and memory chips.

Turn off the phone
Koh Dong-Jin, the head of Samsung's mobile business, said earlier the fault rate for the Galaxy Note 7 amounted to 24 handsets per million and it would take about two weeks to prepare replacements.

"We are asking users to power down their Galaxy Note 7s and exchange them as soon as possible," Koh said in a statement late Saturday, adding the firm was "collaborating with national regulatory bodies" around the world.

(Also see: Samsung Galaxy Note 7 Should Not Be Used on Planes, Japan's Regulators Warn)

He advised consumers to use replacement phones which would be loaned by the firm until a new Galaxy Note 7 equipped with fault-free batteries are provided.

"We encourage...Galaxy Note 7 customers to contact their place of purchase or call the designated call centre locally as soon as possible," said the statement.

Growing concern over the device prompted air carriers and aviation authorities in countries including the US, Australia, Canada, Japan, Singapore, Indonesia and India to ban the use of the Galaxy Note 7 on board.

(Also see: Samsung Galaxy Note 7 Use Banned on All Flights in India)

But cases of exploding batteries continued to emerge following the recall announcement, as users claimed a burning device had damaged a hotel room in Australia or set a car in the US on fire.

In a widely-reported case last week, a Florida man allegedly saw his car catch fire after he had left a Galaxy Note 7 charging inside it, with images on social media showing a Jeep engulfed in flames.

Samsung said it was aware of the two incidents, with local authorities investigating the case in the US.

The latest crisis came at a sensitive time for Samsung's top management, which has accelerated a generational power transfer in the founding Lee family that controls the firm and its parent Samsung Group.

The current chairman Lee Kun-Hee has been bedridden since suffering a heart attack in 2014.

Samsung Electronics's board directors proposed Monday a plan to nominate Lee's son, J.Y. Lee, as a new board member.

The junior Lee has been vice chairman of the company since 2013 but has not taken an official board seat, maintaining a relatively low profile.

But the board members said in a statement "the time is now right" to nominate the junior Lee as a board member "to allow him to take a more active role in the company's strategic decision-making".