Samsung ends production of Galaxy Note 7. Lessons to be learned?

The manufacturing flaw could tarnish the reputation of Samsung's future phones, leading loyal customers to seek out products from the smartphone giant's competitors. 

Andy Wong/AP/File
Samsung will recall all Galaxy Note 7 smartphones sold in mainland China, amounting to around 191,000 units, China's product safety regulator said Tuesday, in another setback for the tech giant in the world's largest smartphone market.

Samsung has announced it will cease production of its flawed Galaxy Note 7 after a failed attempt to recall and replace the faulty phones which have been known to catch fire.

The massive recall has rocked Samsung, the world's largest smartphone seller. While the company expects to suffer drastic losses, it also faces a larger crisis that has potential to inflict permanent damage on the brand, which could lead customers to switch allegiances by picking up an Apple or Google phone.

"No one should have to be concerned their phone will endanger them, their family or their property," US Consumer Products Safety Commission Chairman Elliot Kaye said in a statement emailed to USA Today. "Due to the ongoing safety concerns associated with Galaxy Note 7 phones, it is the right move for Samsung to suspend the sale and exchange of all Galaxy Note 7s."

The "final decision" to stop production came Tuesday, as Samsung opted to stop manufacturing and marketing its latest phone. The company said all customers should power their phones down immediately and return them to wherever they were purchased. Carriers have said that customers can exchange the phones for a different model made by other manufactures.

Since the phone's debut in August, Samsung has struggled to respond to reports of batteries overheating and catching fire. The company planned to replace some 2.5 million recalled phones last month with another version, but just last week five reports of the supposedly safe models also catching fire surfaced, including one on a Southwest Airlines flight from Louisville to Baltimore that spurred the airline to evacuate the plane.

The highly publicized safety risk and subsequent recall has been has PR nightmare for Samsung, which could stand to lose $17 billion as a result of the manufacturing flaw. Following the announcement, the company's shares dropped by 8 percent, the largest dip the South Korea-based tech company has seen in a decade.

While Samsung may be able to absorb those heavy loses, it must find ways to rebuild trust in its brand or face serious, long-term consequences.

"The [Note 7] unit is forever going to be tarnished and the danger is that the brand becomes irretrievably damaged as well," Stephen Robb, a partner at British law firm Weightmans, told Reuters. "They need to be writing to every customer with an apology and some form of 'compensation'.... It will clearly be costly for the company but the alternative is to end up going the way of Nokia and Blackberry."

Analysts say the Note 7's poor reputation could spread to other phones manufactured by the tech giant, including future products that have yet to hit shelves.

"This has probably killed the Note 7 brand name," Edward Snyder, the managing director of Charter Equity Research, told Reuters. "By the time they fix the problem they have to go through recertification and requalification and by the time that happens, they're going up against the [Galaxy] S8 launch."

Information from Reuters was used in this report.

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