SAMSUNG

Galaxy Meltdown

The Galaxy Note 7
was supposed to
be Samsung's big
hit—but then they
started melting

The Galaxy Note 7 was supposed to be Samsung’s big hit — then they started melting

Things were supposed to go so differently for Samsung.

The Galaxy Note 7 smartphone debuted to glowing reviews in mid-August, capping off a comeback year for the tech giant’s mobile business. Last year’s Galaxy S6 Edge helped Samsung claw back some market share from Apple, even as both companies struggled to compete with lower-cost Chinese rivals like Oppo and Huawei, which were churning out almost-as-good smartphones for nearly half the price.

With smartphone sales slowing down around the world, the Note 7 was looking like the slam-dunk Samsung needed to keep the momentum going. The Vergecalled it Samsung’s “best phone ever.” The Wall Street Journalsaid it was a “great phone” for people who could pony up the necessary $850. CNET praised it as “the sexiest smartphone ever.” Between the phone’s waterproofing, its top-of-the-line screen and nifty stylus, the buzz about the Note 7 was deafening.

But then on Friday, Samsung issued a global recall of the million units sold, the first such recall at this scale. Reports emerged that the batteries in a number of the phones were exploding; Samsung said it had 35 confirmed cases. And with Apple planning to unveil the new iPhone 7 next week, Samsung’s biggest product hit of the last few years will likely get buried under bad news and iPhone headlines for the near future.

“Though the Galaxy S6 Edge and Plus have shipped many more units, the Note is a more premium device, and it does a lot for the Samsung brand,” mobile sector analyst Ian Fogg said in an interview. “It’s not a volume product, but it’s very much a flagship device, and has a halo glow for the brand.”

Given the scope of the recall and the limited information made available thus far, Fogg says that “it’s too early to say” what the damage looks like, and that “not even Samsung” has an idea of what the impact on the bottom line will be. Further trouble for Samsung could come from the U.S. government. An unnamed federal official told Recode that the company has bungled the recall process by not clearing it with the US Consumer Safety Product Commission.

But the impact to Samsung’s image as a maker of premium devices on-par with Apple will be severe and long-lasting.

Over the last couple years, Samsung had begun to revive its struggling mobile unit in part by focusing on what Fogg called “differentiated” products like the Note. The Galaxy line of smartphones had been reliable hits until a disastrous 2014 when the highly-anticipated Galaxy S5 flopped with consumers. While competition from China certainly played a role, it just wasn’t differentiated enough to stand out in a world where all high-end smartphones basically looked the same.

And yet since then, Fogg said, “they’ve transformed the design, quality, and execution in flagship smartphones. [The recall] is a shame, because the Note 7 really is a technical achievement, by far the most differentiated phone on the market.”

Fogg thinks that one particularly big trouble spot for Samsung could be Europe, “because they didn’t have stylus-based phone in Europe last year, and there’s pent-up demand” that Samsung could now be missing out on.

Because the high-end smartphone market is now so saturated with other products (or as Fogg and other analysts prefer to say, “mature”), customers who wanted to buy a Note 7 — a relatively unique product — have lots of options in both competing high-end Android phones, and of course Apple’s various iPhones.

As Jan Dawson of Jackdaw Research puts it, “the reality is that when Apple announces a new iPhone, and probably when it goes on sale, you likely won’t be able to buy a Note 7.

“That means the iPhone has got more of a clear route to success,” Dawson added. “Yes, the [cheaper] S7 Edge and Edge Plus will be available, but the Note 7 is by all accounts a fantastic device and, well, if you are deciding between an iPhone and a Note 7, the big difference is that you won’t be able to buy a Note 7.”

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