Samsung burning to regain trust with results of Note 7 fires probe

Reuters News
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Posted: Jan 22, 2017 5:05 PM

By Hyunjoo Jin

SEOUL (Reuters) - Samsung Electronics Co Ltd plans on Monday to reveal reasons behind the spontaneous combustion of its recalled Galaxy Note 7, as the world's biggest smartphone maker works to regain consumer trust before launching its next premium model.

The announcement would come more than three months after Samsung scrapped the short-lived competitor of Apple Inc's iPhones, costing $5.3 billion in operating profit.

Reports of Note 7 handsets catching fire began soon after their August launch. A recall to replace the batteries did not solve the problem, prompting a second recall. Its reputation damaged, sales of the Galaxy S8 will be widely seen as a barometer of Samsung's ability to bounce back from the debacle.

"Consumers will not be reluctant to buy the S8, expected in April or May, only if Samsung clearly finds out what caused the fires," said Hi Investment analyst Song Myung-sup.

Samsung is likely to offer several reasons for the fires, including the battery - whose capacity was 16 percent more than the preceding model - as well as heat management software, said former Samsung mobile engineer Kim Yong-serk.

"Samsung may have given a really high target for its battery capacity to suppliers, as consumers demand longer battery life," said Kim, a professor at Sungkyunkwan University. "Its waterproof feature may have prevented heat from dissipating."

'BIG MISTAKE'

Samsung on Friday said it would announce the findings of investigations conducted by itself and independent organizations, as well as a "quality enhancement plan". Mobile chief Koh Dong-jin will chair a briefing on the fires' causes.

In September, the engineer-turned-president announced the recall of 2.5 million Note 7 handsets due to faulty batteries from a supplier, later identified as affiliate Samsung SDI Co Ltd.

But handsets with cells from another supplier - China's Amperex Technology Ltd (ATL) - continued to catch fire, casting doubt on the faulty battery explanation. That prompted a second recall and permanent end to sales.

Analysts said shipping replacement phones before identifying the root cause of the fires injured Samsung's reputation.

"The biggest mistake Samsung made was that it recalled its Note 7 again," said HMC Investment Securities analyst Greg Roh. The firm would have difficulty convincing investors the matter is resolved if it again only blamed the batteries, he added.

A person familiar with the matter told Reuters last week that Samsung was able to replicate the fires and had identified the batteries as the main cause. The person said the fires could not be explained by hardware or software design.

Despite the impact of the Note 7's demise, the South Korean firm expects fourth-quarter operating profit to hit a more than three-year high, driven by booming chip sales. That forecast pushed Samsung's share price to a record high this month.

Samsung will announce its final earnings figures on Tuesday.

(Reporting by Hyunjoo Jin; Editing by Christopher Cushing)