Samsung Note 7 Fires Risk Hurting Demand for Other Products

Uproar over combusting Note 7 phones may tarnish the brand
Much however depends on whether new complaints arise

Kong Tse has seen first-hand how the global uproar over flammable Samsung Note 7 smartphones is playing out with consumers. The 26-year-old, who hawks devices in the warrens of Hong Kong’s Wanchai Computer Center, says sales of the company’s handsets have tumbled 30 percent since the controversy began, including the high-end S7 Edge.
“Once betrayed, eight times avoided,” says the tousle-haired salesman, invoking a local saying while leaning against the counter in a tiny shop for Well Go Telecom. “They’ve lost a lot of trust.”

Kong’s experience suggests the debacle with Samsung Electronics Co.’s Note 7 battery fires may reverberate beyond a single product line and jeopardize a brand the South Korean company has spent billions to burnish. Investors will find out more about the fallout on Friday, when Samsung reports earnings for the first time since the crisis began. The Korean company had originally aimed for a Thursday release.

Note 7 sales will undoubtedly fall short of original projections. Since the recall, six analysts surveyed by Bloomberg have cut estimates on Note 7 shipments this year by an average of 38 percent to 8 million units, from an original 13 million. Several said they were waiting to gauge the impact on Samsung’s other products, from washing machines to the flagship Galaxy S7.

Samsung has worked hard to limit the damage. The Suwon-based company moved quickly to recall more than 2.5 million Note 7s after the battery troubles emerged and has already begun shipping replacements to key markets, such as Korea and the U.S. Still, Samsung has lost momentum against key rivals such as Apple Inc. and Huawei Technologies Co. The troubles appear particularly challenging in China where customers and government-owned media railed about the country’s exclusion from the recall, which they saw as discriminatory.

“The Note 7 impact will last for a while, especially in China where so many good phones are flooding out,” said Lee Seung Woo, an analyst at IBK Securities Co. in Seoul. “Samsung may shed market share further in China and the Note 7 impact will possibly spill over to its other product line-ups on the mainland, considering the recent public uproar.”

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