Samsung, one of the biggest smart phone and PAD producers and also Apple’s biggest competitor, lost $22 billion that accounts for 11% of its market cap in one day due to the safety alert from regulators. The problems of its new product Note 7 has transferred from overheat to explosion. This deepened problem not only puts hurdles on launching its new product but also disadvantages the company against Apple who just released its new series of products.
Shares have plunged 11 percent since Friday, the biggest two-day decline since 2008, after U.S. regulators joined the company in cautioning users to power down their Note 7s and refrain from charging them. Aviation authorities and airlines have called on passengers to stop using the gadgets during flights.
The stock drop suggests the damage to Samsung’s brand could go well beyond the early estimates of $1 billion for a single product’s recall. The company has spent heavily on marketing its name in past years, and had hoped to get a head start on Apple Inc. by unveiling its device weeks before the new iPhone emerged. That advantage has now disappeared.
Samsung announced the recall on Sept. 2 after about three dozen of the premium smartphones were found to have batteries that caught fire or exploded. On Saturday, Samsung told users in South Korea to stop using the devices and to bring them to its service centers -- less than a month after they made their debut.
Note 7s with new batteries are due to become available on Sept. 19. The Suwon, South Korea-based has said about 2.5 million had been shipped before their recall, including those in the hands of consumers and carriers.
The U.S. Consumer Product Safety Commission and Samsung are in talks on an official recall of the devices as soon as possible. Almost all CPSC recalls are done voluntarily in conjunction with a company and the scope of any action on the Note 7 may be identical to what Samsung has already suggested to consumers. But once the agency becomes involved, it triggers additional protections for people. For example, U.S. law prohibits the sale or resale of any recalled item once CPSC acts.
The CPSC advisory came on the heels of warnings from aviation regulators in several countries and airlines. The European Aviation Safety Agency on Friday cautioned flyers against packing them in checked bags, according to a posting on its website. That followed a non-binding warning issued Thursday by the U.S. Federal Aviation Administration. Similar moves have taken place in India while Singapore Airlines Ltd. barred travelers from powering up or charging the devices on flights. U.S. carriers are taking a variety of steps following the FAA’s statement. Delta Air Lines Inc. posted a notice on its website telling passengers to comply with the regulator’s guidance while Southwest Airlines Co. will share information on its website and social-media channels to make passengers aware of the FAA’s recommendations.
The regulators’ actions are forcing this company to make one of its largest callbacks. Revising the safety of the products and convincing customers reuse its products takes both time and money. In react to this progress, a drop of 11% market cap reconfirmed the huge impacts on this tech giant.