Samsung Electronics has scrapped its flagship Galaxy Note7 smartphone less than two months after its launch, dealing a huge blow to its reputation and outlook after failing to resolve safety concerns.
Samsung announced the recall of 2.5 million Note7s in early September following numerous reports of the phones catching fire and on Tuesday it finally pulled the plug on the $1,349 device in what could be one of the costliest product safety failures in tech history.
The decision to scrap the Note7 came after fresh reports of fires in replacement devices prompted new warnings from regulators, phone carriers and airlines.
"(We) have decided to halt production and sales of the Galaxy Note7 in order to consider our consumers' safety first and foremost," the South Korean firm said in a filing to the Seoul stock exchange.
Samsung said earlier it asked all global carriers to stop sales of the Note7s and the exchange of original devices for replacements, while it worked with regulators to investigate the problem. The company is offering to exchange Note7s for other products or refund them.
Samsung's decision to pull Note7s off the shelves not only raises fresh doubts about the firm's quality control but could result in huge financial and reputational costs.
Analysts say a permanent end to Note7 sales could cost Samsung up to US$17 billion and tarnish its other phone products in the minds of consumers and carriers.
Investors wiped nearly US$20 billion off Samsung Electronics' market value on Tuesday as its shares closed down eight percent, their biggest daily percentage decline since 2008.
"This is the first time that I have seen a product recall go this badly wrong," financial analyst Richard Windsor said in a note to clients. “When it comes to the damage that it will do to Samsung’s brand, we are in uncharted territory”.
The premium device, launched in August, was supposed to compete with Apple's latest iPhone for supremacy in the smartphone market. Well received by critics, its first problem was a shortage as pre-orders overwhelmed supply.
But within days of the launch images of charred Note7s began appearing on social media, in the first sign that something was seriously amiss with the gadget.
Samsung, the world's top maker of smartphones had nearly twice the global market share of Apple at mid-year, having shipped 77.6 million phones in the second quarter alone, said Neil Mawston, an analyst at research firm Strategy Analytics.
The South Korean company was counting on the Note7 to replace its previous flagship model, the Note 5, which had sold around 15 million units over the four quarters ended in June, according to Strategy Analytics data.
Instead, Samsung will be forced to count on existing models such as its Galaxy S7 edge, which has a slightly smaller screen but is also slightly less expensive.
The void left by the demise of Samsung's flagship phone leaves the door open to rivals like Apple, which last month introduced its latest iPhone 7 line and Google, which is set to launch its new Pixel phone later this month.
However, the most likely beneficiaries are other high-volume Asia-based makers of premium-priced phones based on Google's Android operating system, Mawston said.
"The gap is likely to be filled by rivals including Apple and Google Pixel, although probably Oppo, Vivo, LG Electronics and Sony stand to benefit the most," Mawston said.
Oppo and Vivo are distinct smartphone brands owned by privately held Chinese electronics giant BBK Electronic, while the other rivals are classic global rivals of Samsung.
The South Korean firm did not comment on whether it had identified the cause of the fires in the replacement devices, although officials in Seoul said it was looking at several possibilities including the batteries.
"It is more difficult to analyse the cause of the accidents this time because of various patterns of the accidents," an official with the Korean Agency for Technology and Standards, which met with Samsung and experts on Monday, told Reuters.
China's quality watchdog said Samsung would recall all 190,984 Note7s sold in the mainland.
(Additional reporting by Eric Auchard in Frankfurt, Deborah Todd in New York, Hyunjoo Jin in Seoul; Writing by Lincoln Feast; Editing by Miyoung Kim, Muralikumar Anantharaman and Alexandra Hudson)