Samsung had no choice but to suspend sales of the Galaxy Note 7 after multiple reports revealed that even replacement devices aren’t safe. A day later, the company confirmed it will no longer manufacture and sell the phone. Samsung may lose some $17 billion in revenue, but that might not be the worst thing for the company. Damage to the Samsung and Note brands might be irreparable in the short term.
Following the first Galaxy Note 7 recall, analysts said they expected the company to lose $5 billion, in missed sales and recall costs.
“In the worst-case scenario, the U.S. could conclude the product is fundamentally flawed and ban sales of the device,” HI Investment Securities analyst Song Myung-sub told Reuters, before Samsung announced that it would stop Galaxy Note 7 sales for good.
Samsung will lose nearly $17 billion the company was expected to generate during the Galaxy Note 7’s product cycle. The estimate comes from Credit Suisse analysts and others who expected the company to sell 19 million phablets.
“This has probably killed the Note 7 brand name,” Charter Equity Research managing director Edward Snyder said. “By the time they fix the problem they have to go through recertification and requalification, and by the time that happens, they’re going up against the (Galaxy) S8 launch.”
“We think the Note 7 incident may hurt demand for Samsung’s other smartphone models as well,” broker Nomura said, adding that it may have to lower Samsung mobile’s profit estimates for the fourth quarter by 85%.
“The (Note 7) unit is forever going to be tarnished, and the danger is that the brand becomes irretrievably damaged as well,” UK law firm Weightmans partner Stephen Robb said. ”They need to be writing to every customer with an apology and some form of ‘compensation’… It will clearly be costly for the company, but the alternative is to end up going the way of Nokia and Blackberry.”
Finally, in addition to the long-term impact on reputation and brand, the Galaxy Note 7 scandal may have an adverse impact on Samsung’s component business.