Narrative: Samsung Bungled the Note7 Recall
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Narrative: Samsung Bungled the Note7 Recall (Jan 9, 2017)
Updated: January 23, 2017.
Samsung’s Galaxy Note 7 was very well reviewed when it launched, and some reviewers argued it was the best available smartphone. However, within weeks of the launch, it became clear that the device had a major battery issue which caused fires, and Samsung began recalling what it thought was a subset of devices affected by the flaw. It then became clear that even devices thought safe might suffer from the flaw, and Samsung eventually recalled all Note 7 devices and stopped selling the phone entirely. The recall caused a significant shortfall in revenue and large losses in Q3 2016, with some spillover into Q4.
Many have assumed the Note7 recall would badly damage Samsung’s reputation, but all the surveys I’ve seen suggest the impact is fairly muted. Notably, those surveys suggest existing Samsung device owners’ perceptions of the brand and the quality of its products were relatively unaffected, while it was those with little personal exposure to Samsung products whose opinions were more likely to be affected. In other words, the recall shouldn’t affect repeat sales to existing customers, but might hamper efforts to sell to new customers. Having said that, early reports of Q4 2016 sales overall seem to indicate Samsung had a great quarter.
Samsung has been rightly criticized over the handling of the recall, which played into a broader narrative about its customer service, which has been poor in other circumstances too. It was slow to issue a recall and then didn’t work with the US CPSC at first either. It did come around eventually, however, and seems to have acted much more appropriately since then. However, given that Samsung still hasn’t announced the reason for the fires, concerns over future products are likely to linger until there’s a satisfactory explanation. Certainly, the Note7 recall was a cloud that hung over Samsung’s CES announcements.
On January 23, 2017, Samsung finally released the findings of its detailed investigation into the battery fires. My to-do list for Samsung at this press conference was as follows: demonstrate that the company really had found the root causes of both sets of battery fires, in a way that was credible; where possible have third parties involved; and talk through the changes to manufacturing processes to avoid these issues in future. It and its third party investigators (UL, Exponent, and TUVRheinland) did a good job of talking through all this at its press conference. Samsung certainly went into enough depth and with enough credibility to convince me that it really has uncovered the root and proximate causes of the battery fires in a way that should enable it to avoid the issues in future.
But the press conference also highlighted a couple of other things: firstly, that there were basic and serious flaws in the manufacturing process for Manufacturer B’s batteries (with most reporters saying this is ATL of China); and secondly, that it was partly Samsung’s design for the phone as a whole which put pressure on the batteries from both manufacturers. In other words, the findings lay blame at Samsung’s door in at least two ways: a lack of quality control around third party components, and poor design choices that prioritized thinness over safety. The fact that third party investigators were able to spot the very consistent defects in both sets of batteries, but Samsung wasn’t, also suggests a lack of quality control both before and after the issues emerged. My worry is that, even though Samsung will now undoubtedly change its processes for testing and design, Samsung’s culture was a root cause too, and it’s not at all clear that this will change in the same way or to the same extent.
The review embargo on the Samsung Galaxy S8 lifted this morning and so a slew of reviews was published. The consensus appears to be that the hardware is beautiful and generally very good, while the software is mixed at best. Which is about the least surprising sentence anyone ever wrote about a Samsung phone, but is also bad news given the extent to which Samsung emphasized software this time around. On the hardware side, reviewers seem to love the screen, the dimensions of the display versus the overall footprint, and the feel in the hand. The one knock from a hardware perspective is the fingerprint sensor, which bafflingly is high up on the back and right next to the camera, where it’s both hard to reach and easy to miss and smudge the camera lens instead. From a software perspective, the main criticisms revolve around Bixby, which is missing its voice feature in the US and seems redundant and gimmicky, but the other criticism is around face unlock. As I said when it launched, face unlock is a sop to users who miss the fingerprint unlock on the front and want a simple way to get into their phone without typing in a passcode, but Samsung arguably hasn’t done enough to make clear that it’s a pretty insecure way to actually lock a phone. As such, it’s fine for grandma but not for the corporate IT department, and Samsung needs to make that clearer, especially given that iris scanning is also present as an option. This certainly won’t be exactly the debut Samsung wanted, but the positive reception to the hardware will do a lot for it. Also worth noting: Samsung provided a review unit to the Wall Street Journal but not the New York Times, whose reporter Brian Chen has been very critical of Samsung over its customer service among other things.
At this point, I’m pretty sure the only people still worrying about the Note7 and the impact the recall has had on demand for Samsung phones are reporters. All the evidence from consumer surveys right from the start has suggested that (a) no-one’s views on Samsung were changed all that dramatically by the recall, and more importantly (b) those with recent direct experience of Samsung products budged least in their views. In other words, if you’d used lots of Galaxy smartphones and they’d never blown up, you had reasonable confidence the next one you owned wouldn’t either. These new statements from Samsung back that up, and it looks like the phones are doing even better than last year’s, which shouldn’t be surprising because they really do look pretty compelling, at least on paper (reviews should be coming out in the next week or so and that may change demand for the better or worse). Given that sales are mostly going to be coming from existing owners of Galaxy S phones, none of this should surprise anyone. And I know from talking to them that Samsung employees are desperate to put the Note7 behind them, and quite reasonably so at this point.
Samsung Debuts Galaxy S8 and S8+ (Mar 29, 2017)
Samsung today announced its next-generation flagship smartphones, the Galaxy S8 and S8+, at an event in New York, which I was able to attend in person. I’ll post separate comments on some of the other announcements made today. The phones look really solid, with a great new design that quite dramatically changes the relationship between screen size and device size, in much the same way as Apple is expected to do later this year. The new design is much more comfortable to hold than last year’s fairly angled efforts, but it has two tradeoffs: the fingerprint sensor is now on the back, and the aspect ratio is very long and thin, which may cause compatibility issues with apps and will mean letterboxing with videos. There are a few software features worth noting too: the new assistant Bixby, which combines voice control with some clever camera recognition tricks and proactive notifications, and broader application of Samsung Pay and Pass (the latter uses biometrics to log the user in to websites and apps). While the hardware is clearly impressive at first glance, we’ll have to wait until reviewers have spent some time with the software and services to know whether it’s as good as advertised – this has been an area of weakness for Samsung in the past, so there’s a steep hill to climb here. The other thing worth noting is that Samsung is pricing these devices around $100 higher than all its previous entrants in this line, which puts them at a competitive disadvantage relative to other flagships, and may offset the sales benefits it might have otherwise achieved from what looks like a strong effort here. All this should finally help move the Samsung news cycle beyond the Note7 and into a more positive narrative for a while.
This feels like a huge misstep, especially announced the week of the S8 launch, which could otherwise have been the moment Samsung finally put the Note 7 debacle behind it. While the desire to minimize the environmental impact is admirable, and Samsung would no doubt benefit financially from refurbishing the phones, it would have been better off simply doing what it originally said it would and abandoning the line entirely and merely recouping parts. Another story that both keeps the Note7 in the news and raises the prospect of people actually buying them again (even if under a different name) just seems like a terrible tradeoff to make for those benefits. Ironically, this was the week when Samsung also finally issued a software update which will kill the remaining devices still in use in the US, yet another milestone in moving past this whole mess.
via The Verge
As usual, it would be great to understand in more detail the methodology behind this survey, but it’s not available. The Verge seems to have got the rankings wrong – from what I can tell, Samsung was 7th and not 3rd last year – but it’s also worth noting that Samsung’s score dropped from 80.44 to 75.17, which sounds a lot less dramatic than dropping from 3rd (or even 7th) to 49th. The fact is that there are a lot of companies clustered together between 75 and 87 points and so a small drop in the score produces a big drop in rankings. Since the survey was also conducted in November and December last year, when the Note7 debacle was still very fresh in people’s minds, I’m guessing it would score a lot better just a few months from now. Though the Verge picked up on Samsung’s drop as their headline, it’s worth noting where other tech companies sit too: Amazon is #1 (score 86.27), Apple #5 (82.07), Google #8 (82.00), Tesla #9 (81.70), Netflix #18 (79.86), and Microsoft #20 (79.29), all of which classify as either very good or excellent. It’s also worth noting that big cable companies like Comcast and Charter score in the low 60s, which qualifies as “poor”, while the major wireless carriers score 66-72 (“fair” to “good”), with T-Mobile top and Sprint bottom.
Samsung to Use Sony Batteries in Galaxy S8 Phone – WSJ (Feb 17, 2017)
The fallout from the Note7 recall continues: Samsung is apparently adding another battery supplier to its roster, though Sony’s capacity is so small that it will likely be by far the smallest by volume. None of this guarantees anything – the Note7 had problems because both battery suppliers produced faulty batteries and because Samsung’s design put pressure on those batteries. Given that those same two suppliers will be making most of the batteries used for the S8, and Samsung of course will still be designing it, what those three companies do differently is far more important than adding another minority battery supplier. As such, I suspect this is probably better read as an attempt by Samsung to exert some pressure on its existing suppliers by demonstrating a willingness to look elsewhere than any sort of strategy to ensure safer batteries in the S8. In that way, this is analogous to Apple’s recent move to give Intel some of its iPhone modem business. But all this also highlights the difficulties in shifting suppliers at such scale – neither Apple nor Samsung can suddenly switch suppliers at this volume, and even if they could the new vendors often underperform relative to the incumbents (as here with Sony’s batteries and also with Intel’s modems).
While Samsung was rightly hammered over its early handling of the Note7 battery issues, since it decided to kick into full gear and issue a full recall, its performance has been far better. This official statement from the chairman of the CPSC, the US body responsible for recalls, praises Samsung and the US wireless carriers for their response and their success rate in getting devices recalled – 97% of devices have now been returned. Taken together with Sunday’s announcement of the conclusion of the investigation, which was thorough even if it didn’t go far enough on the culture side, this seems like a decent conclusion to the saga. It’s worth noting that most of the statement is devoted to complaining about the CPSC’s small budget and lack of resources to do its own in-depth investigations.
Samsung released preliminary numbers a few days ago, and rather shocked everyone by previewing some of its best results in a long time (and its best operating margin ever). Until today, though, we didn’t know the precise breakdown by segment behind those numbers – now we do: the mobile business rebounded decently from last quarter, but is still a shadow of its former self in terms of both revenues and profits, while the semiconductor business is going gangbusters. The latter provided a quarter of revenues but a little over half of operation profits for Samsung Electronics last quarter, and was the major driver of that fantastic overall operating margin. An increasing focus on premium products and rising prices driven by tight supply versus demand both helped that division, while on the mobile side Samsung seems to have done a good job selling Galaxy S7 phones to those who might otherwise have bought a Note7. It looks like Q1 might be a little tough on the mobile side – we won’t get a Galaxy S8 at Mobile World Congress in February, meaning Q1 will be the lull quarter before a likely launch in Q2. But overall this is a pretty decent set of results for a company dealing with the fallout of the Note7 recall.
via Samsung Electronics Announces Fourth Quarter and FY 2016 Results – Samsung (Samsung’s earnings deck with lots more detail here and there’s more coverage on Techmeme. You might also be interested in the Samsung Q4 2016 deck which is part of the Jackdaw Research Quarterly Decks Service)