Samsung loses $22 billion in market value after Note 7 smartphone recall

Samsung lost US$22 billion of market value over two days as investors factor in a bigger hit to its bottom line from widening bans and warnings on its Note 7 smartphones.

Shares have plunged 11 per cent since Friday, the biggest two-day decline since 2008, after US regulators joined the company in cautioning users to power down their Note 7s and refrain from charging them. Aviation authorities and airlines have called on passengers to stop using the gadgets during flights.

The stock drop suggests the damage to Samsung’s brand could go well beyond the early estimates of $1bn for a single product’s recall. The company has spent heavily on marketing its name in past years, and had hoped to get a head start on Apple by unveiling its device weeks before the new iPhone emerged. That advantage has now disappeared. 

“Samsung’s nightmare is just getting worse and worse,” said Bryan Ma, vice president of devices research for IDC. It’s possible that airlines, rather than isolating Note 7s, may decide to ban all Samsung phones given the difficulty of differentiating between models. “If true, then the Note 7 could end up dragging down the rest of the portfolio.”

Samsung announced the recall on September 2 after about three dozen of the premium smartphones were found to have batteries that caught fire or exploded. On Saturday, Samsung told users in South Korea to stop using the devices and to bring them to its service centres – less than a month after they made their debut.

Note 7s with new batteries are due to become available on September 19. The company has said about 2.5 million had been shipped before their recall, including those in the hands of consumers and carriers.

The US Consumer Product Safety Commission and Samsung are in talks on an official recall of the devices as soon as possible. Almost all CPSC recalls are done voluntarily in conjunction with a company and the scope of any action on the Note 7 may be identical to what Samsung has already suggested to consumers. But once the agency becomes involved, it triggers additional protections for people. For example, US law prohibits the sale or resale of any recalled item once CPSC acts.

“The uncertainty over the Note 7 recall has grown following the tough reactions from the US,” said Lee Seung Woo, an analyst at IBK Securities in Seoul. “Samsung has to settle this situation as early as possible by replacing every Note 7 device in order to reassure customers. In the worst case scenario, Samsung may have to consider discontinuing Note 7 sales for a time.”

The CPSC advisory came on the heels of warnings from aviation regulators in several countries and airlines.

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