Galaxy Note7 'Total Recall' Could Cost Samsung $740 Million

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Reports began springing up last week that some Galaxy Note7 smartphones were exploding while charging. While we initially only heard of a handful of cases that were brought to light, Samsung was obviously tracking a larger number (relatively speaking).

In fact, Samsung responded to the incidents rather quickly, publicly acknowledging the problem, verifying that it had received 35 reports of battery failures, and later announcing a global recall that would see all current Galaxy Note7 users receive a brand new replacement device (without an exploding battery, of course).

Customers can exchange their Galaxy Note7 for a new Galaxy Note7, or opt to exchange it for a Galaxy S7 or Galaxy S7 Edge. In the case of the latter two, Samsung will refund you the difference in the cost between the devices. And as an added bonus, Samsung will give you a $25 credit to your wireless bill or a $25 gift card for your troubles. In the grand scheme of things, it’s a win-win for customers.

We wish we could say the same for Samsung. According to a new report from The Korea Herald, the global recall could cost Samsung some serious coin — as much as three quarters of a billion dollars according to one analyst. To be more specific, Samsung Securities analyst Hwang Min-sung says that the actual recall and replacement program will cost 120 billion won. Hwang estimates that 3 million of the 6 million Galaxy Note7 devices that were to be produced during the third quarter will instead go towards replacing customer devices, which will cost another 400 billion won. Effects of the recall are expected to linger into the fourth quarter, costing Samsung another 300 billion won.

Galaxy Note7 Front

When all those estimates are tallied, we’re looking at a total hit to Samsung’s second half operating profit of 820 billion won, or $740 million. But in the end, Samsung’s quick and decisive action has likely saved the company from tougher, longer-term headaches.

"The recall is a negative factor in the short term but will surely be a wise decision because other alternative measures are unlikely to help Samsung regain confidence from consumers and investors," added Hwang.

With that said, even though Samsung acted swiftly and has come up with a solution that will likely appease most customers, the U.S. Consumer Product Safety Commission (CPSC) is not entirely happy. The CPSC is a bit miffed that Samsung didn’t run its recall through its office in the U.S. to ensure that faulty devices are immediately taking off store shelves and deemed illegal to sell. For its part, Consumer Reports added, "Samsung should immediately initiate an official recall with the Consumer Product Safety Commission, given the serious nature of the safety problem it identified with the Galaxy Note 7."