Samsung kills off Galaxy Note 7 amid ongoing safety fears

What to do if you own a Samsung Galaxy Note 7

Samsung Electronics is permanently stopping production of its Galaxy Note 7 smartphones, dealing a huge blow to the South Korean electronics giant and potentially shaking up the competitive smartphone market.

Samsung released a statement Tuesday confirming it will no longer make the device after several reports that original and replacement models of the smartphone caught fire or exploded.

"For the benefit of consumers' safety, we stopped sales and exchanges of the Galaxy Note 7 and have consequently decided to stop production," Samsung's statement said.

Shares in Samsung Electronics closed down 8% — its biggest daily percentage drop since 2008, according to Reuters — with almost $20 billion wiped off the company's value Tuesday.

The death of the Note 7 could also usher in sweeping changes among Samsung's executive ranks. The company typically announces a reorganization at the end of the year, and the short, troubled history of Note 7 is sure to prompt changes — perhaps in the mobile, quality-control and supply-chain operations, say analysts.

Late Monday, Samsung had asked its global network of retailers to stop selling the Note 7 while it investigated issues with replacement devices. On Sunday, the world's largest smartphone maker said it temporarily halted production because some of the phones were overheating when charged.

Samsung recalled 2.5 million of the original Note 7s last month, with consumers exchanging many of the phones for the same model handsets that Samsung said were safe to use.

Last week, a replacement Note 7 caught fire on a Southwest Airlines jet destined for Baltimore from Louisville, prompting an evacuation. In the days since, there have been reports of at least two other replacement phones overheating.

Having already "tarnished the brand the first time around," says Gartner analyst Tuong Nguyen, allowing the battery issues to linger could impact Samsung beyond just the Note 7. "It's gone on for long enough to get the attention of a lot of consumers, so there may be a cascading impact on their other products," he says.

Killing off the Note 7 would deal a massive blow to Samsung, The company leads the smartphone market among hardware makers, with a 22% share, based on second quarter global shipments tracked by research firm IDC. Some analysts projected the recall and halt in production could cost Samsung more than $2 billion and smartphone sales worldwide.

Competition the smartphone space continues to heat up with Apple and its iPhone 7 as well as Google, which introduced the Pixel smartphone last week. The market is also approaching the important holiday season in the U.S.  "This fourth quarter tends to be the biggest quarter of the year for most of the handset makers," says Nguyen.

The end in production could also impact the economy of South Korea, the home of Samsung. South Korean finance minister Yoo Il-ho said Samsung scrapping the Note 7 could hurt the country's exports, reports Reuters.

After the pain of the recall, Samsung needs to hang on to its customers. Softening the blow: The Note counts toward less than 10% of the total volume of smartphones Samsung ships worldwide, says IDC analyst Ramon Llamas. Between this and no clear cut competitor in the Android market, Samsung should hold its position on top as long as it proves the hardware troubles are only contained to its Note product.

"Samsung obviously has to win some trust back," Llamas says. "But is the entire market going to sour on Samsung? Considering these are still isolated incidents to one product line, I think Samsung can probably weather this storm."

Contributing: Edward C. Baig and Jon Swartz. 


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