What’s the cost of designing and selling an smartphone that catches on fire? If you’re Samsung, it’s US$5.3 billion. The electronics maker is now estimating its losses for dealing with the Galaxy Note 7 debacle will climb well over its earlier projections and could go higher than its latest expectation.
Sumsung’s expensive headache began a few weeks ago when reports that the Galaxy Note 7 smartphone—released just before Apple’s iPhone 7—was catching fire. Customers suffered from burns, damage to their homes and cars, and even fires on commercial airplanes.
Samsung initially downplayed the incident, then offered Note 7 owners replacement units that caught fire, too. The company finally halted production and sales this week and is offering customers who bought the Note 7 a full refund and $100 towards another Samsung smartphone.
The company has been pushing up its estimated cost for the Note 7 disaster and is currently targeting $5.3 billion over the next couple quarters, according to the Chicago Tribune. Samsung executives are saying that number could climb even higher.
Isolated losses in the billions won’t, however, kill Samsung because the company is so large and offers a stunningly wide and varied product line. In addition to smartphones and tablets, Samsung makes computer chips, televisions, home appliances, and more.
More than the money
Still, Samsung is facing losses that top $5 billion, and that’s just the tangible money hit. The company is also already losing consumer trust and may have to ditch the Note brand name for future products. At the very least, Samsung won’t use the number 7 for a long time.
The public is already conflating the Note 7 with all Samsung smartphones, and some reports are saying long time Galaxy device users are defecting to Apple’s iPhone. Some airlines are requiring passengers to power down all Samsung smartphones and tablets before flying, reinforcing the growing distrust.
Samsung’s credibility is also taking it on the chin because company executives tried to downplay the problem, showed a disregard for customer safety, and failed to act quickly and decisively when phones first started exploding.
That’s bad news for Samsung, and is the kind of loss that’s much harder to recover from than burning up $5.3 billion.