Samsung Electronics began replacing Galaxy Note 7 phones sold worldwide on Monday. All the new devices will have batteries made by ATL of China instead of Samsung SDI.
The U.S. Consumer Products Safety Commission has approved Galaxy Note 7s with ATL batteries, so Samsung can proceed with the recall and resume sales.
Only last year Samsung SDI accounted for a quarter of the world's compact rechargeable battery market, ranking first ahead of LG Chem, Panasonic and ATL, who just had around 10 percent each.
But market share is mostly determined by sales to affiliates, and there is not much difference in technology. And now ATL has clearly stolen a march on Samsung SDI in terms of quality by the simple expedient of preventing its batteries from going up in flames on recharging.
Based in China, ATL is well known in the industry for supplying pouch-type batteries to Apple, which has a reputation for high quality standards, including the new iPhone 7.
Market insiders say Samsung's habit of keeping it in the family caused Samsung SDI to slacken quality controls and innovation. In the first half of this year, 31.6 percent of Samsung SDI's revenues came from other Samsung affiliates, and in 2014 the proportion was 49.6 percent. Samsung SDI supplied 70 percent of the Galaxy Note 7 batteries.
Over-reliance on affiliates ended up costing Samsung SDI its advantage in developing cutting-edge technologies. LG Chem, ATL and other rivals wasted no time switching to pouch-type batteries to meet emerging demand, but Samsung SDI kept churning out stick-type batteries because its main client had not caught on.
When Samsung SDI finally started making large-capacity, 3500mAh pouch-type batteries to meet orders from Samsung Electronics, they were not up to scratch. The Galaxy Note 7 is slimmer than its predecessor, and its waterproof and vibration-resistant design further constrains battery space, which proved too tall an order in too little time.
Another problem was a mass exodus of technicians due to money-saving layoffs at Samsung SDI. The company's total staff shrank from 7,408 in late 2015 to 6,937 as of June. One industry source said, "The staff cuts were probably at least partly responsible for the battery defects."