Samsung halts production of Note 7 smartphones

The Korean company has been engulfed in controversy since the device hit the market two months ago and customers began posting videos of charred and damaged handsets.

The Note 7 battery burns after it exploded during tests at the Applied Energy Hub battery laboratory in Singapore. Edgar Su / Reuters
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Samsung halted output of Note 7 smartphones as carriers stopped selling them, the latest blow in a six-week crisis triggered by a battery defect.

Samsung has temporarily suspended production of its most expensive phone, a person with direct knowledge of the matter said Monday, asking not to be identified because the decision hasn’t been made public. The move came after T-Mobile US and Telstra stopped selling Note 7s following reports of problems with devices thought to be safe. Samsung shares fell as much as 4.6 per cent in Seoul.

Phones given out as replacements and models using a different battery have been reported as overheating and catching fire, fueling concerns that Samsung hasn’t solved the problem that led to its initial recall of 2.5 million units. The Korean company has been engulfed in controversy since the device hit the market two months ago and customers began posting videos of charred and damaged handsets.

“It’s an ongoing nightmare,” said Bryan Ma, vice president of devices research for IDC. “You would have hoped that they could have gotten past this already and moved on. Clearly, it keeps coming back.”

AT&T halted sales of the device in the US over safety concerns. “Based on recent reports, we’re no longer exchanging new Note 7s at this time, pending further investigation of these reported incidents,” AT&T spokesman Fletcher Cook said in an emailed statement on Sunday.

Suwon-based Samsung said it will take immediate steps approved by the Consumer Product Safety Commission if it finds a safety issue exists.

The production suspension raises questions about Samsung’s original investigation into the battery problems. The company said the issue stemmed from one supplier, which it had stopped using.

AT&T is the third-biggest customer of the South Korean company while T-Mobile’s parent is No 4, according to estimates compiled by Bloomberg. Sprint said its exchange policy is unchanged while Verizon Communications said the phone is out of stock at its stores.

Telstra, Australia’s biggest phone company, is offering alternative phones to customers as Samsung investigates the issue.

The latest imbroglio coincides with mounting pressure from investor Paul Elliott Singer, who this month advocated a break up of the complex Samsung empire. Singer’s Elliott Management Corp – through affiliates Blake Capital and Potter Capital – proposed that Samsung separate into an operating company and a holding company, dual-list the former on a US exchange, pay shareholders a special dividend of 30 trillion Korean won and improve governance by adding three independent board members.

Mr Ma at IDC said the production halt will deal another blow to a smartphone that had won strong reviews when it first came out in August.

“They’ve invested so much in the product, which was supposed to be the product that helps turn the company around,” Ma said. “To their credit, it was doing really, really well. That’s why it’s such a shame it has developed the way it has.”

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