The last few weeks have been tumultuous for tech giant Samsung Electronics, as it has been knocked down by the battery explosions of its latest flagship smartphone Galaxy Note 7 across the globe.
Samsung recalled 2.5 million Note 7 smartphones in September 2016 after a number of the units spontaneously burst into flames. Faulty batteries were blamed at first, and it issued replacement phones it claimed were safe. However, some of the new phones suffered the same problem, and the firm asked consumers to switch off their Note 7s on Oct. 11. All production and sales of Note 7 handsets has now been stopped, and the model has been withdrawn from the market.
South Korea’s No. 1 conglomerate is still struggling to recover, having initially regained composure and immediately ordered a global recall only to stumble and fall when the replacement handsets also overheated and exploded.
After numerous cases of exploding batteries and a botched replacement program, with sales now discontinued worldwide, some analysts predict the Note brand is finished for good and will be given a quiet burial.
It is a pity, because the Note was truly a game changer and this year’s model got the best reviews the product line had ever seen.
When it was first launched in 2011, many mocked its large screen size, with Wired even lamenting that its “comically huge” 5.3-inch screen made the device too big for pockets and thumbs alike. But ultimately, its popularity meant that even archrival Apple was forced to follow suit.
Another feature that was ridiculed was the stylus, which also has been imitated by competitors. The fourth edition was the first smartphone to be tailored for virtual reality -- that too is being aped by others now.
It won’t be an understatement to say this is an unprecedented crisis that will haunt the group for a long time to come.
Samsung has now lowered its operating profit estimate for the third quarter to 5.2 trillion won ($4.6 billion) from the original estimate of 7.8 trillion won. It also lowered its expected revenue to 47 trillion won from 49 trillion won.
Most analysts have pegged the cost of the Galaxy Note 7 fiasco at about $4 billion, including recall expenses and lost sales, with the mobile division even expected to report an operating loss.
As Fitch Ratings has noted, potential long-term brand damage from the recall and production suspension of the Note 7 is a greater threat to its credit profile than the direct financial impact, which will be buffered by ample liquidity and a strong balance sheet.
“Fitch believes that the benefits of Samsung Electronics’ diversified product portfolio have reduced its vulnerability to this shock. ... However, the problems with the Note 7 have raised long-term uncertainty about its handset operations, as the issues with the flagship model have highlighted weaknesses both in R&D capabilities and the company’s capacity to efficiently remedy serious hardware defects.”
The ratings agency then went on to add that industry experience, such as the decline of Nokia and BlackBerry, shows how successful manufacturers can lose market share particularly quickly in the handset business. This is due to the fast pace of technological change and the frequency with which many consumers change their handsets.
These are indeed tough times for Samsung, but I think it will not be long before it overcomes it, given the tenacity of Koreans.
On that note, I should also add that the crisis that Samsung faces now can be linked to the unique “ppalli-palli” culture in the country.
The Korean term means “fast; quickly; hurry up” in English. Every single economic achievement the nation has reached to this day is linked to this culture. Koreans do everything as quickly as possible with dedication to achieving the set goals as soon as possible. As a result, it has become the main work ethic that is understood by all employees and strictly enforced by bosses.
For that matter, ppalli-ppalli is so ingrained in Koreans that mothers don’t tell their children “come along.” They say “ppalli-ppalli wa,” or “come quickly.” My Korean friends and even wife do the same to me!
I worked in the European Union business lobby in the country for close to eight years during my 12-year stay here and have come face-to-face with this culture numerous times. Although a foreign organization in name, it used to be run as a typical domestic company since the chief operating officer was Korean. While this culture makes employees put in long work hours, it does not really enhance productivity.
Most Korean companies want things to be done as quickly as possible without due checks and balances. Meeting the deadline is more important than doing a perfect job.
Although Samsung heir apparent Vice Chairman Lee Jae-yong is trying to totally transform the work culture at his group, it can be successful only if those lower down adhere to the changes. Which, I believe, is not the case.
This is evident from the fact that the botched recall raises questions about how carefully Samsung researched safety issues around the original Note 7, as well as the replacement.
Samsung has often challenged itself by cramming sophisticated components into a new device in time to beat the launch of the latest iPhone. This time, it advanced the launch of the Note 7 to a month before the launch of iPhone 7 to gain an advantage.
It is reasonable to assume that everyone from the tech engineers, designers and suppliers were told to strictly adhere to the deadline ppalli-ppalli, and somewhere down the line appropriate safety checks were ignored or glossed over.
Moreover, faced with trouble when the first batch of recalls took place, it should have taken the time to analyze the mistake, but wanted to get back in the game ppalli-ppalli. It found a quick fix -- blaming the overheating on a batch of Samsung SDI batteries -- and deployed it with characteristic speed and efficiency. Unfortunately, the diagnosis was wrong.
It seems highly likely that Samsung’s ppalli-ppalli efforts to pack ever more power in these sleek devices may have contributed to the Note 7’s tendency to overheat and even explode by cramming a high-capacity battery into too small a space.
Typically, lithium-ion batteries have been relatively safe, but as batteries grow ever denser, that leaves an ever thinner margin for error in design and manufacturing. Being ppalli-ppalli in evaluating their performance is a definite no-no -- something the Samsung executives behind the project did not comprehend.
Hopefully, it will be a lesson for the company and it will bounce back ppalli-ppalli.
By Ram Garikipati
Ram Garikipati is a business writer at The Korea Herald. He can be reached at firstname.lastname@example.org