In an embarrassing setback last week, Samsung announced that it would recall the Galaxy Note 7 units worldwide after reports of battery explosions while charging. When asked to elaborate on the costs of the mass recall program, Samsung’s mobile chief Dong-jin Koh told reporters that it was a “heartbreaking amount.” Though less than 0.1% of the 2.5 million Galaxy Note 7 units sold worldwide were affected by the battery problem that caused explosions, the Korean company has decided to recall all the 2.5 million units and give customers a new one.

Samsung Galaxy Note 7
Image source: Samsung.com

Samsung SDI stops supply of batteries for Galaxy Note 7

Analysts at Credit Suisse, Pelham Smithers Associates, and Daishin Securities estimate that the recall could cost Samsung up to $1 billion, according to Bloomberg. But the potential damage to Samsung’s reputation would be much bigger than the cost of replacements, said Chang Sea Jin of the National University of Singapore. Bloomberg added that the financial impact of the recall will still be less than 5% of the company’s estimated net income of $20.6 billion this year.

The faulty battery packs that caused the explosions were supplied by Samsung’s own subsidiary Samsung SDI. According to the Wall Street Journal, Samsung SDI was responsible for 65% of the Galaxy Note 7 batteries, while the remaining 35% were supplied by Hong Kong-based Amperex Technology. Reports coming out of South Korea claim that Samsung will no longer use Samsung SDI batteries in the Galaxy Note 7.

Samsung seeking a third battery supplier

Samsung will reportedly seek a third supplier besides the two companies it relies on for smartphone batteries. Amperex Technology has clarified that it supplied battery packs for the Galaxy Note 7 units sold in China, which is unaffected by the recall program. Samsung Securities analyst Hwang Min-sung said the recall would hurt sales target for the Galaxy Note 7 from 6 million units to 3 million units in the third-quarter.

The Note 7 went on sale amid much fanfare on August 19. The device had received glowing reviews from critics and users alike. But the mass recall and the upcoming iPhone 7 and 7 Plus could significantly affect the Note 7 sales worldwide.