Samsung shares nosedive after it halts Note 7 sales

A visitor tries out a Samsung Electronics' Galaxy Note 7 at company's headquarters in Seoul, South Korea, October 5, 2016. [Photo/Agencies]

Samsung Electronics'shares plunged over 6 percent after the tech giant said Tuesday that it has decided to temporarily halt the global sales and exchange of its Galaxy Note 7 smartphones while it investigates reports of fires in the devices, as the tech giant scrambled to contain a deepening recall crisis.

The smartphone conglomerate's shares fell 6.25 percent as of 11:00 am, the largest intraday drop in a month.

The company said on its website that the decision was made after consulting with relevant authorities.

Although a precision investigation is underway over recently reported cases of replacement Note 7 phones catching fire, Samsung said it decided on the temporary suspension for the sake of consumer safety.

"Consumers with either an original Galaxy Note7 or replacement Galaxy Note7 device should power down and stop using the device," the company said in statement.

It said the company is closely cooperating with partners and mobile carriers for consumers using Note 7 phones, promising to notify the consumers of follow-up measures, such as exchange for other devices, as early as possible.

Top US and Australian carriers on Monday suspended sales or exchanges of the flagship Note7s, while major airlines reiterated bans on passengers using the phones, after smoke from a replacement device forced the evacuation of a passenger plane in the United States last week.

Samsung's decision to pull Note7s off the shelves for the second time in two months underscores the South Korean firm's struggles to fix the over-heating issue.

The premium device launched in August was supposed to compete with Apple Inc's latest iPhone for supremacy in the smartphone market. Well received by critics, its first problem was a shortage as pre-orders overwhelmed supply.

But within weeks of the launch images of charred Note7s began appearing on social media, in the first sign that something was seriously amiss with the gadget.

Samsung has since recalled 2.5 million Note7s due to faulty batteries, and the latest reports of fires in replacement devices is raising fresh doubts about the firm's quality control procedures.

Edward Snyder, managing director of Charter Equity Research, said it was important to get the Note7 off the market.

"This has probably killed the Note7 brand name, who knows if they’ll even be allowed to re-release it," 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."

Samsung Electronics Co has temporarily halted the production of its fire-prone Galaxy Note 7 smartphones as fire cases were reported even with replacement phones, Yonhap news agency reported on Monday citing an official of Samsung's subcontractor.

The unidentified official was quoted as saying the production of replacement phones will be suspended in Vietnamese factories that have responsibility for the production of Note 7 phones to be shipped globally.

The official said he heard that the decision was made in consideration of the safety of global consumers in the United States as well as in China and South Korea after consulting with regulatory authorities of the three countries.

The suspension came as several cases of catching fire were reported even with replacement devices.

According to media reports, eight cases were reported, including five in the United States, one in South Korea, one in China and one in China's Taiwan.

According to China Daily, in late September, Samsung apologized to Chinese consumers for failing to provide a detailed explanation over the safety of its Galaxy Note 7 smartphones on sale in China after more reports of fires involving the product.

Samsung said in a statement that the smartphones sent for customers in China use batteries from a different supplier, compared with the smartphones recalled at overseas market, and they can ensure the safety of these products that have passed testing and certification and analysis of the independent third-party research institute.

At present, the new Note 7 products that have been swapped at overseas markets are using the same battery supplier to those that are used for the Chinese version, Samsung said.

The company has begun a limited recall of the phones that affects 1,858 smartphones provided in July and August on a trial basis before the phone's official launch on Sept 1 in China.

Samsung said as these 1,858 phones use the similar batteries with those previously sold in the United States and South Korea, they have potential risks. Samsung said it has recalled most of the testing phones and was communicating with users for the rest phones.