Samsung Shares Nosedive After Note 7 Recall

A burnt-out Samsung Galaxy Note 7 smartphone photographed in Gwangju, South Korea. Photocredit: AFP

It is no longer news that Samsung Electronics has scrapped the production of its Note 7 smartphone earlier this week. What is, however, new is collapse of Samsung’s share price as global markets struggled to maintain an oil-fuelled rally.

Stock in the world’s biggest smartphone maker tumbled eight percent, sending Seoul stocks sliding 1.2 percent after it told customers to stop using their Galaxy Note 7 devices and called a halt to worldwide sales. This came on the heels of US officials warning that the handsets could blow up.

The group halted production on Tuesday and then announced it was scrapping the model, once markets had shut in Asia. Samsung advised consumers with Note 7s to power down and stop using the phones.

The announcement came a little over a month after Samsung announced a recall of 2.5 million Note 7s in 10 markets following complaints that its lithium-ion battery exploded while charging.

“The group’s flagship handset has turned out to be worse than a dud — it is a dangerous fire risk,” City Index analyst, Ken Odeluga, told AFP.

“This incendiary effect has spread to Samsung’s shares.

“After last week clawing back September’s double-digit losses, the stock wiped out three weeks of progress with today’s eight-percent fall.”

Odeluga added that Samsung had a big impact on sentiment because of its huge market capitalisation of more than $200 billion (179 billion euros).

“It is a key weight of many Asia-Pacific equity market indices. If Samsung catches a cold, so do the region’s equities.”

The crisis has turned into a PR disaster for the company. The situation became worse when reports emerged a week ago of replacement phones also catching fire.

Samsung shares slump

Samsung shares had already fallen 1.5 percent Monday on reports it was suspending production of the device.

Analysts noted fierce rivals like US giant Apple — the second biggest smartphone maker — and challengers such as China’s Huawei would benefit in the short term.

“Samsung shares have fallen sharply today, but the company is still trading not too far off a record high,” said Laith Khalaf at stockbroker Hargreaves Lansdown.

“This is undoubtedly a blow for Samsung, but the reputational damage to the company is not of the same scale of the emissions rigging scandal for Volkswagen or the Gulf of Mexico disaster for BP, thankfully because no-one has been hurt.

“Competitors might now enjoy a short term boost to sales.”

– Oil rally stalls –

Elsewhere, oil prices dipped after a soaring Monday. This is as a result of President Vladimir Putin’s comments at the World Energy Congress in Istanbul. He said that Moscow was ready to align with OPEC’s push to limit output and address a supply glut.

“Russia is prepared to limit production and calls on other exporting countries to do the same, said Putin”

His comments came as Saudi Energy Minister Khalid al-Falih predicted prices could rise further, having been under pressure since mid-2014 on the supply glut, overproduction and weak demand.

Big-name energy-linked firms jumped in Wall Street and their counterparts in Asia initially followed suit before the rally lost steam.

The International Energy Agency warned Tuesday that the glut may weigh on world markets deep into next year. Unless the OPEC producer cartel makes good on its promise to cut output.

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