10/24/16

The Fatal Mistake That Doomed Samsung’s Galaxy Note

On the verge of challenging Apple’s mobile phone dominance, the South Korean company made a rushed decision, based on incomplete evidence, that later forced it to kill the model.

The X-ray and CT scans showed a pronounced bulge.

After reports of Galaxy Note 7 smartphones catching fire spread in early September, Samsung Electronics Co. executives debated how to respond. Some were skeptical the incidents amounted to much, according to people familiar with the meetings, but others thought the company needed to act decisively.

A laboratory report said scans of some faulty devices showed a protrusion in Note 7 batteries supplied by Samsung SDI Co., a company affiliate, while phones with batteries from another supplier didn’t.

It wasn’t a definitive answer, and there was no explanation for the bulges. But with consumers complaining and telecom operators demanding answers, newly appointed mobile chief D.J. Koh felt the company knew enough to recall 2.5 million phones. His suggestion was backed by Samsung’s third-generation heir apparent, Lee Jae-yong, who has advocated for more openness at one of the world’s most opaque conglomerates.

That decision in early September—to push a sweeping recall based on what turned out to be incomplete evidence—is now coming back to haunt the company.

Two weeks after Samsung began handing out millions of new phones, with batteries from the other supplier, the company was forced to all but acknowledge that its initial diagnosis was incorrect, following a spate of new incidents, some involving supposedly safe replacement devices. With regulators raising fresh questions, Messrs. Lee and Koh decided to take the drastic step of killing the phone outright.

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