Samsung, U.S. Expand Phone Recall to 1.9 Million Note 7s

Samsung Tries to Contain the Note 7 Crisis

Samsung Electronics Co. and the U.S. Consumer Product Safety Commission agreed on an expanded recall of original and replacement Note 7 smartphones, increasing the number of devices that can be returned to 1.9 million.

All owners of the Note 7s will be able to exchange their devices for another Samsung smartphone or receive a refund under the plan approved by the CPSC, the company and agency said in statements Thursday. Customers who exchange the Note 7 for a Samsung device will get a $100 credit, while those opting for an alternative brand will receive $25 credit.

Samsung cut its third-quarter operating profit by $2.3 billion on Wednesday after deciding to permanently end production of the troubled smartphone. The Note 7 devices were overheating and catching fire even after a recall that was supposed to fix the problem.

“We are committed to doing everything we can to make this right,” said Tim Baxter, president and chief operating officer of Samsung Electronics America.

The announcement almost doubles the number of smartphones subject to the recall. The U.S. consumer agency had announced a voluntary recall of almost 1 million Note 7s on Sept. 15.

The commission mainly enters into agreements with companies for recalls rather than going to court to compel action.

“The lithium-ion battery in the Galaxy Note7 smartphones can overheat and catch fire, posing serious fire and burn hazard to consumers,” the agency said in a release.

Samsung has reported 23 new cases of incidents in the U.S. since the Sept. 15 recall announcement, according to the agency. Out of 96 total incidents, there have been 13 reports of people injured by burns and 47 cases of property damage.

The latest incidents appear to be due to a battery flaw different from the one that triggered the original recall last month, a person familiar with discussions about the issue told Bloomberg.

“The recall expansion announcement made just now won’t make any difference on the cost that Samsung has reflected on its latest revised earnings estimates,” said Song Myung-sup, a Seoul-based analyst at HI Investment & Securities Co. “However, winning back the customers’ trust is a different issue. That side effect will linger until early next year.”

After three straight days of declines, Samsung shares rebounded today, rising 1.4 percent in Seoul trading. The stock has slumped 10 percent in the previous three trading days, wiping $21 billion from its market value.

(Updates with U.S. consumer agency release starting in fifth paragraph.)

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE