The Galaxy Note 7 fiasco threatens to become not just Samsung’s but also the tech industry’s biggest product-launch disasters in history.
The company’s most expensive smartphone, Galaxy Note 7, is also one of its lowest-volume products, yet the cost of its “exploding battery” disaster, product recall, and the subsequent product discontinuation, may have cost Samsung more heavily than you’d think.
Market analysts calculate the net loss to Samsung’s market capitalization at a staggering $17 billion (USD), considering that the cost incurred to the company grappling under this disaster was under $3 billion.
Samsung lost a little over $1 billion in its original recall of the Galaxy Note 7 smartphones it spent about $500 million in bill of materials (BOM) to manufacture, at an originally intended revenue and profit estimates of $600 and $106 per piece, respectively. The company hadn’t stopped production at this point.
When it became clear that the smartphones sent to customers who chose replacements over refunds also showed evidence of defective batteries, Samsung had produced over 4 million units of Galaxy Note 7, with a total bill of materials cost of about $2 billion. That’s about $4 billion in straight losses.
Samsung had hoped to earn $17 billion in revenue over the entire product life-cycle of the Galaxy Note 7, if the product was executed as planned (millions of units sold, additional revenues from content providers, service revenues, accessories, etc.). With the product discontinued, the cost to the company’s market cap is nearly as much – $17 billion.
The other casualty of this fiasco is the Samsung brand itself. It could take some effort to earn customer trust back for the high-end smartphone segment. Google’s launch of the high-end Pixel family of smartphones also complicates matters, as it could steal the posterboy status for the Android ecosystem away from brand Samsung Galaxy.