The root cause of the Samsung Galaxy Note 7 explosions and fires that forced the company to recall all 2.5 million devices sold was the company rushing to market ahead of the iPhone 7 launch, claim Bloomberg sources. Based on reports that the iPhone 7 would be a ‘dull’ upgrade, the company decided to take advantage by bringing forward its own launch.
The top brass at Samsung Electronics, including phone chief D.J. Koh, decided to accelerate the launch of a new phone they were confident would dazzle consumers and capitalize on the opportunity, according to people familiar with the matter. They pushed suppliers to meet tighter deadlines, despite loads of new features, another person with direct knowledge said. The Note 7 would have a high-resolution screen that wraps around the edges, iris-recognition security and a more powerful, faster-charging battery. Apple’s taunts that Samsung was a copycat would be silenced for good.
The move backfired in the most literal sense, and may ironically have contributed to the iPhone 7 selling better than expected …
It was just days after launch that there were multiple reports of Note 7 smartphones exploding and catching fire. To make matters worse, Samsung dithered before announcing a full recall, and even then initially failed to do it through the proper channels in the USA.
“This is creating an enormous problem for the company — for its reputation and ability to support its customers when there’s a problem,” said David Yoffie, a management professor at Harvard Business School and board member at Intel.
The fires and explosions were traced to faulty lithium batteries. As engineers worked to identify which of the company’s multiple battery suppliers were responsible, further embarrassment was added when it turned out that it was the batteries made by one of Samsung’s own subsidiaries – and not a third-party supplier – that were at fault.
The direct cost of the recall has been estimated at $2B and the financial impact may not end there. It’s believed that the issue has also led some to switch platform, from Samsung to Apple.
While Apple announced that it would not be revealing opening weekend sales numbers, leading to speculation that it expected iPhone 7 sales to be disappointing, two carriers reported record pre-orders and the most popular models quickly sold out. It also appears that the larger Plus model is outselling the 4.7-inch one, which will increase Apple’s average selling price (ASP).
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