Analysts have cut their earnings expectations for the South Korean tech giant after it announced on Sept. 2 a recall of Note 7 smartphones from 10 markets due to faulty batteries that caused phones to set on fire. Samsung has received 92 reports of batteries overheating in the United States alone, including 26 reports of burns and 55 cases of property damage.
The recall is unprecedented in scale for the world’s top smartphone maker, which prides itself on its manufacturing prowess. It had been counting on the device – costing 988,900 won ($882) in South Korea – to compete with Apple Inc’s new iPhones and to maintain its smartphone sales in the second half.
Some analysts say the recall may cost Samsung up to $5 billion in revenue this year and will damage the company’s reputation. Samsung says it has sold 2.5 million phones with faulty batteries.
A Samsung spokeswoman told Reuters the schedule for restarting sales for the device elsewhere, including the United States, will depend on the circumstances for the individual markets. The firm has said new sales in Australia will resume in early October.
Samsung is pushing to salvage sales during the busy shopping season in key markets in the fourth quarter.
The firm tapped China’s Amperex Technology Limited (ATL) as the main battery supplier for the Note 7 phones, a person familiar with the matter told Reuters. A second person told Reuters that Samsung SDI Co Ltd made faulty batteries that triggered the recall, but the company’s representatives could not be immediately reached for comment.
Though the initial recall announcement was well received, analysts said Samsung’s brand image was subsequently tarnished as aviation authorities and airlines began issuing bans or advisories against using or charging the Note 7 on planes.
Samsung formally announced the recall of about 1 million Note 7 devices on Thursday in cooperation with the U.S. Consumer Product Safety Commission (CPSC), but the commission criticized the company for trying to initiate a recall on its own instead of following proper reporting procedures.
Samsung has said it would resume sales in the affected markets once enough replacement phones have been issued. It will start issuing replacement devices in South Korea on Sept. 19, while U.S. replacements will start on Sept. 21.