It’s hard to believe that the Galaxy Note 7, which was originally designed to fight Apple and boost its mobile business, has turned into a “ticking time bomb” planted by Samsung for itself. As the Note 7 explosion continues to ferment, the Korean manufacturer, which has long occupied the top spot in the global smartphone market, is facing its biggest development crisis in history.

On September 2, Samsung announced a recall of the latest flagship smartphone Galaxy Note 7 in some cities around the world due to a problem with the battery overheating and spontaneous combustion. At present, more than 2.5 million units have been recalled globally. The scale is unprecedented in Samsung’s development history and is even the largest recall in the smartphone industry.

Currently, the impact of the incident continues to worsen. According to a Reuters report on September 15, when Samsung Electronics cooperated with the U.S. Consumer Product Safety Commission to announce the recall of Galaxy Note 7, it said that the company had received 92 reports of battery overheating in the United States, including 26 reports of burns and 55 reports of property damage.

In the Chinese market, which was initially exempt from the recall, Samsung has recently sent notices to some Note 7 users to stop using and replace them. For safety reasons, Samsung has also taken measures to limit the maximum charging capacity to 60%. However, yesterday, the first spontaneous battery combustion incident occurred in the Chinese market. Samsung officials have not commented on this incident while it is still under investigation.

For Samsung, the economic losses caused by this flagship product may reduce its revenue by nearly 5 billion US dollars this year. But the impact more serious than money is that it has severely damaged Samsung's image and plunged Samsung into the most serious trust crisis in its history.

Level skipping is born but brings security risks

At the ATT and Verizon stores in Palo Alto, Silicon Valley, the United States, Tencent Technology found that it could accept the replacement of users' Note7, but the new Note7 mobile phone could no longer be purchased. Samsung's other two flagship models, S7 and S7 Edge, also had few customers.

A customer in a Verizon store said that he heard about the recall of Note7 and felt that he was lucky to have never used a Samsung mobile phone. "If I want to buy Note7, I will consider waiting for the next batch." The customer said. He said that at a similar price point, at least the iPhone has not had any security issues in this regard, so he would rather not take the risk.

Previously, in order to thwart Apple’s iPhone 7 series, Samsung had good intentions. The name of its flagship phone jumped directly from Galaxy Note 5 to Galaxy Note 7. It was equipped with cutting-edge exclusive technologies such as iris recognition and curved screen that Apple’s phones did not have. It was released a month before Apple.

However, the Galaxy Note 7’s dream of catching up with the iPhone 7 was awakened by the sudden battery spontaneous combustion incident.

On August 24, a netizen uploaded a number of photos of Samsung Galaxy Note 7 after it was suspected of "exploding" on the well-known Korean mobile phone forum "ppomppu". The phone was then sent back to a Samsung Electronics service center. According to service center employees, the incident was most likely caused by an exploding battery.

Because Galaxy Note 7 goes on saleThe explosion occurred in less than a week, which also caused Korean media to report the news of the Galaxy Note 7 "explosion". Some Korean media even dubbed the Galaxy Note 7 as a "1 million won bomb" (the Note 7 is priced at 988,900 won in South Korea).

Subsequently, Samsung Electronics said that due to additional quality control testing of the Galaxy Note 7 mobile phone, it would postpone the shipment of the mobile phone. But things are not as simple as Samsung imagined. Galaxy Note 7 has been experiencing suspected battery "explosion" problems one after another in other countries.

It is understood that less than half a month after the Galaxy Note 7 was launched globally, there have been at least 35 reports of Galaxy Note 7 batteries "exploding". So on September 2, Samsung Electronics officially announced that it would recall all 2.5 million Galaxy Note 7 units sold due to fire hazards. Such a large-scale recall has become the largest flagship mobile phone recall in the smartphone industry so far.

If it were just the losses caused by the recall, Samsung would still be able to control it well. However, many airlines later included the Galaxy Note 7 on the dangerous goods list, which brought an abrupt end to the upward momentum of Samsung mobile phones that had just returned to the market. At the same time, it also gave the outside world the impression that it had fallen to the bottom and was temporarily out of control.

Affected by the recall incident, Samsung Electronics’ stock price has continued to decline in recent days, and its market value has evaporated by more than 20 billion US dollars. Currently, the Galaxy Note 7 is still under recall. Sales have been suspended in areas where it has already been sold, and the launch time in other cities continues to be delayed. Samsung has not yet announced the cause of the hidden dangers in the battery.

Note7 mobile phone recall procedure is confusing

The recall of Samsung Note7 has been full of twists and turns. After the first few explosions, Samsung did not attach great importance to them and considered them to be accidental incidents. On September 2, it opened a Note7 recall page on its official website, stating that users who purchased Note7 can "voluntarily" replace their phones. However, as more and more explosions occurred, Samsung had to report to the Consumer Product Safety Commission, the U.S. government agency responsible for consumer product safety, and jointly released formal recall information with the latter.

It was not until September 15, nearly two weeks after Samsung announced its recall plan, that the U.S. Consumer Product Safety Commission issued official recall guidance for Samsung Note7 smartphones. Regarding the lack of timely communication between the two parties, the chairman of the committee bluntly pointed out that conducting a recall without notifying the official is not a common method for a successful recall.

Because Samsung did not initiate the recall plan according to the usual procedures, after it independently released the recall information on September 2, there were still operators and retailers selling Note7 models. It was not until the official recall information was released on September 15 that the Note7 was completely discontinued.

Currently, Samsung sells a total of 2.5 million Note7 mobile phones in 10 countries around the world, of which 1 million are in the U.S. market. In the more than two weeks since Samsung first released recall information, only about 130,000 Note7 units have been recalled in the United States., less than 15% of the total Note7 sold outside the US market.

According to the recall information jointly released by the U.S. Consumer Product Safety Commission and Samsung, U.S. users who have purchased Note7 currently have three options: one is to exchange the existing defective Note7 for a new Note7, which will be back on the shelves no later than next Wednesday (September 21); the other is to exchange the Note7 for Samsung's other two mobile phones S7 or S7 Edge, and Samsung will compensate the user for the difference; the third is a full refund. In addition, all Note7 users will receive a $25 gift card as compensation.

Samsung's mistakes in handling the recall itself have further dampened consumer confidence. Many users who purchased Note7 did not know what to do with their phones after Samsung initially released the recall information. This is because many users signed up for installment purchases through carrier channels, and Samsung initially did not explain how these users should proceed with the replacement process.

Some users have affirmed the design craftsmanship and comprehensive functionality of Note7, but the potential risk of explosion has deterred many consumers. Even many "die-hard" users of Samsung mobile phones have to consider switching to other brands of mobile phones because of the potential safety risks.

Apple unexpectedly profits, Huawei is secretly wary

It’s also a new phone being released, but Apple’s situation is quite different.

On September 16, Apple’s iPhone 7 series was officially launched in China, and the iPhone continued to be “sold out as soon as it was launched”. This week, Apple’s stock price closed at US$114.92, a cumulative increase of 11%, the largest single-week increase since October 2011. Apple’s market value increased by approximately US$63 billion that week.

Some investors and analysts say signs of strong iPhone 7 sales are starting to reassure investors. Prior to this, iPhone sales had fallen for two consecutive quarters. Isn’t it possible that Apple’s autumn harvest was so rich without the help of Samsung’s Galaxy Note 7 battery spontaneous combustion incident? The answer is obvious.

Currently, Samsung ranks first in the global smartphone market share, followed closely by Apple.But in terms of profit structure, Apple’s iPhone is much larger than Samsung’s Galaxy series. In recent years, Samsung has been hoping to seize Apple's high-end market through the Galaxy Note.

Starting from the fourth quarter of 2015, Apple’s market share has been declining under the impact of domestic mobile phones. Although Apple launched the iPhone SE in March last year, consumers didn't quite buy it. Especially reflected in the Chinese market, the most recent quarterly financial report showed that Apple’s global revenue fell by 15% year-on-year, with revenue in Greater China falling by 33% year-on-year. Last quarter, Greater China was the second largest market for Apple mobile phones. This time it fell to North America and Europe and became the third largest market.

Compared with Apple, Samsung has performed relatively tenaciously in the face of the impact of domestic mobile phones, and its market share has increased steadily. From the third quarter of 2015 to the second quarter of 2016, Samsung's market share increased by 6.1%, 14.0%, -0.6%, and 5.5% year-on-year respectively.

Samsung's good performance in the second quarter of 2016 was attributed to its flagship phones S7 and S7 Edge in the first half.S7/S7 Edge provides strong support for Samsung to consolidate the high-end flagship market.

Before the Note7 recall incident, Samsung had been doing well in the US market this year. While Samsung's biggest rival, Apple, suffered its first iPhone sales decline in 13 years, Samsung was making rapid progress in the U.S. market with its two flagship models, the Galaxy S7 and S7 Edge. It surpassed Apple in one fell swoop and regained the top spot in the U.S. smartphone market share after more than a year.

According to data from market consulting firm Counterpoint Reserach, in the first quarter of this year, Samsung’s share of the U.S. smartphone market was 28.8%, far exceeding Apple’s 23% market share. This summer, Samsung took advantage of the situation and launched its next-generation flagship model, Note7. This phone was well received upon its release, and numerous review media gave this phone almost the highest possible rating. Before Apple's next-generation iPhone was released, Samsung undoubtedly occupied the most favorable market position.

However, the development of things was full of drama. Before people were still new to this new flagship phone, there were reports of Note7 explosions one after another.

This flagship mobile phone, which Samsung has high hopes for, has now become the target of "everyone shouting about it" in the United States. For Samsung, the timing of the recall could not be worse. A week ago, Apple had just released its latest generation of iPhones, iPhone 7. Judging from the first week of sales, iPhone 7 has gained unprecedented popularity in the market.

According to Samsung's previous plan, it hopes that the Galaxy Note 7 mobile phone will compete with the upcoming Apple iPhone 7 mobile phone. Especially in the next third and fourth quarters, it was supposed to be a good opportunity for Note 7 to continue to leverage the brand image accumulated by S7/S7 Edge, but now it has become a difficult time for Samsung. Although Note7 has unique iris recognition, hyperboloid, S Pen, symmetrical front and back glass, IP68 dustproof and waterproof and other super technologies, it is no longer possible to snipe the iPhone 7.

According to surveys conducted by foreign research institutions, nearly half of Samsung Galaxy Note device owners have expressed their potential willingness to purchase iPhone 7 series products, and nearly 30% of Samsung device users have the intention to purchase iPhone 7.

Industry analysts also pointed out that the global smartphone growth rate this year is only 1.6%, lower than last year's 10%. In addition, Apple's sales have begun to decline due to various reasons in recent years. In this environment, the mistake of Samsung, its largest competitor, will inevitably create opportunities for Apple to increase sales and regain market share.

Jay Yoo, an analyst from South Korea, also said, “What we need to worry about now is not the losses caused by the recall, but Samsung’s overall sales in the second half of the year will be affected by this accident.

In addition to Apple, Samsung is also facing Huawei, another Chinese mobile phone brand that aims to surpass Samsung. Currently, Huawei is continuously expanding overseas, focusing on the Chinese market, hoping to further seize Samsung's market share.

Regarding Samsung’s recall incident, Huawei Consumer BG CEO Yu Chengdong recently said at an internal quality seminar, “Safety quality is like controlling pollution in the Yangtze River, and we must start from the source. ”

It’s too early to say anything, and the crisis of trust is hard to eliminate

When Samsung responded to the battery problem this time, it did not initially predict that it would be a large-scale safety incident, nor did it realize that the safety hazard was so serious. The emergency response and notification speed were slightly slow, and it failed to dissuade buyers from continuing to use it in time. As a result, the incident continued to develop, causing heavy damage to the brand.

Not long after the Galaxy Note 7 was released, the Wall Street Journal published an article stating that the best smartphone choice today is Samsung’s Galaxy Note 7. Not only has it been recognized by the media, but users have also given rave reviews to Galaxy Note 7.

"Galaxy Note7's glass + metal material combination has great appearance. If there had been no recall, would there have been a shiny black iPhone 7?" Many users expressed this view on social media, and some expressed extreme regret for the Galaxy Note 7.

Many of Samsung mobile phone buyers are high-end business people who attach great importance to security needs. A mobile phone with hidden dangers will never be favored by these people. In addition, there are constant news about the Galaxy Note 7 mobile phone "exploding", which is undoubtedly the greatest harm to the Samsung brand.

Credit Suisse analysts said that accidents such as the Galaxy Note 7 recall have seriously affected Samsung's market credibility. In the U.S. market, an important market for Samsung mobile phones, the recall may damage the brand trust that Samsung has spent huge sums of money to build in the U.S. over the years.

So, will Samsung mobile phones be in decline?

The Galaxy Note 7 accident will inevitably have an impact on its sales in the short term, but in the long term, Samsung is still the world's dominant mobile phone company, and the recall is relatively timely, so whether it will decline or not still needs to be judged by final sales.

Automobile manufacturing companies that are highly related to human safety, such as Toyota and Volkswagen, have experienced large-scale recalls in history. Consumers will not completely stop giving a company a chance because of product quality deficiencies.

The real impact is that consumers have lost confidence in their products and brands, especially in the global market, which has caused the largest crisis of trust in history and is difficult to reverse in a short time.

For example, although Samsung in the Chinese market has repeatedly stated that it does not use defective batteries and that it can buy Galaxy Note 7 with confidence, frequent product accidents will naturally reduce users' trust in Samsung. Therefore, whether Samsung can prevent similar battery incidents from happening again in subsequent products is key, but so far we have not seen Samsung give an explanation as to the cause of the battery problems.

The competition in the smartphone market is fierce, and all major mobile phone manufacturers are actively engaged in brand building. The most essential factor that affects the brand is the product. In this round of "Grab 7" battle, Samsung lost and Apple won.