Recall costs at more than $5 billion
The recall and halt in production of the Galaxy Note 7 stained Samsung’s (SSNLF) brand image. Additionally, it will cost the company ~$5.0 billion to deal with the mess. The Note 7 smartphone was recalled due to overheating and exploding batteries. According to Samsung’s internal investigations, two major issues may have led to the battery problem: oversized batteries that didn’t fit properly in the phone’s casing and manufacturing process flaws due to a rapid ramp-up in output.
The oversized batteries were manufactured by Samsung’s affiliate, Samsung SDI. The other problem batteries came Samsung supplier Amperex Technology, which is based in Hong Kong but operates factories in China. Samsung believes a rapid increase in production there led to the defect.
Despite the Note 7 debacle, Samsung still generated sales growth in fiscal 2016 due to strong component sales. Its revenue of 200.7 trillion South Korean won in 2015 rose to 201.87 trillion won in 2016. The chart above shows Samsung’s annual revenue trends in South Korean won for the last five years.
Galaxy S8 on the way
Samsung is preparing to launch its next flagship handset, the Galaxy S8, later this year. The company has typically introduced its newest smartphone product at the Mobile World Congress event in Barcelona. However, it has decided to delay the launch of the S8—possibly to allow it more time to ensure the quality of the product and avoid another recall fiasco.
As the largest smartphone company by market share, Samsung is vulnerable to increasing competition in the smartphone space. Apple (AAPL), Microsoft (MSFT), BlackBerry (BBRY), Nokia (NOK), and Alphabet’s (GOOGL) Google are all trying to gain market share at the expense of Samsung.