Samsung Note 7 Recall Will Be Pricey, But Probably Worth It

Samsung Electronics Co.’s recall of millions of big-screen smartphones isn’t going to be cheap.
The South Korean company may spend as much as $1 billion, after deciding to replace all of the 2.5 million Note 7 phones that were shipped since they went on sale two weeks ago, according to estimates compiled by Bloomberg. Samsung would only say the amount was “heartbreaking.” About three dozen of the devices were found to have batteries that caught fire and exploded.
The timing couldn’t have been worse. Samsung was on a roll, with the success of its flagship Galaxy S7 helping to drive its shares to a record last month and lifting quarterly profit to the highest in two years -- all of this in a sputtering global smartphone market. The Note 7 was supposed to complete a product lineup that would go head-to-head with new Apple Inc. iPhones due to be unveiled this week. As the market leader in Android-based smartphones, Samsung couldn’t risk any injury to its brand.
“The potential damage to reputation is far greater than short-term financial losses,” said Chang Sea Jin, a professor at the National University of Singapore.
Estimates from Credit Suisse Group AG, Daishin Securities Co. and Pelham Smithers Associates put the recall’s cost at around $1 billion or less. Asked about the financial impact, Koh Dong Jin, the head of Samsung’s smartphone business, said at Friday’s press conference in Seoul that it was a “heartbreaking amount.’’

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