Batteries linked to fiery phones

Samsung’s woes not over; next Galaxy model delayed

Koh Dong-jin, president of Samsung Electronics’ mobile division, speaks Monday during a news conference in Seoul, South Korea.
Koh Dong-jin, president of Samsung Electronics’ mobile division, speaks Monday during a news conference in Seoul, South Korea.

SEOUL, South Korea -- Samsung said Monday that a thorough investigation into the fire-prone Galaxy Note 7 phone has confirmed widely held suspicions that its batteries were to blame.

Samsung announced tighter quality controls and more rigorous testing and took responsibility for failing to ensure that design specifications given to its suppliers were fail-safe. The South Korean company was also delaying its next Galaxy phone, the Galaxy S8, which is usually announced in February.

The fires prompted Samsung to recall millions of phones and take a $5.3 billion hit on its earnings.

Samsung is also dealing with another crisis that involves allegations of bribery, presidential influence-peddling and the heir of the conglomerate. Monday's presentation was its final push to assure the public and investors that it acted responsibly, and put a lid on the episode, analysts said.

"It was the battery -- not the device itself, design of the phone or software -- so the lingering doubt over Samsung's other smartphones will be largely removed," said Greg Roh, an analyst at HMC Investment Securities Co.

While praising Samsung's frankness and apologies, analysts question whether the world's largest smartphone maker has really gotten to the bottom of the problem in blaming flaws in the design and production of batteries.

Forrester analyst Frank Gillett said the company's emphasis seems to be on detecting problems in manufacturing, not preventing design problems earlier. The company, he said, needs to find ways to prevent commercial pressures, such as getting a phone out quickly, from causing engineers to make bad decisions. Samsung's Note 7 was timed, in part, to beat Apple's iPhone 7 by weeks.

Ramon Llamas, an analyst at research firm IDC, said he would like to see Samsung show more of a "human side" to solving its problem and say what it's doing to work with consumers affected by this.

Samsung, like South Korea as a whole, fosters a top-down, hidebound culture that stifles innovation and buries festering problems, critics said.

For those critics, these problems have come to light through another front: politics. Samsung has been caught up in a scandal surrounding the country's president, which they say illustrates a hierarchical culture that tends to micromanage away creativity and insulate family-run business empires from accountability and competition.

"The Korean economy as a whole has reached a kind of limit," said Park Sang-in, a Seoul National University economics professor who thinks that the cozy relationship between the government and business is stifling innovation in South Korea.

Park pointed to a decision by a South Korean court last week to block the arrest of Jay Y. Lee, Samsung's leader, after a prosecutor sought a warrant accusing Lee of bribery in relation to the presidential scandal. A string of major South Korean executives, including Lee's own father, have been pardoned or had sentences suspended after being convicted of wrongdoing over the past decade.

Samsung has said Lee did nothing illegal.

During a two-hour news conference Monday, Samsung said tests involving more than 200,000 phones and 30,000 batteries showed different problems with both kinds of batteries used in the Note 7.

Though some experts had speculated that the phones' ultra-thin design or water-resistant features could have made them prone to overheat, Samsung said the investigation found no such problems. Samsung also ruled out software or design with the rest of the phone's hardware, as well as the supply chain.

The Note 7 has one of the biggest battery capacities for a smartphone, but Samsung said the company and outside inspectors found no evidence that the high energy density alone was to blame.

Samsung introduced the Note 7 on Aug. 2 and weeks later recalled the first batch after reports emerged that the phones were overheating and in some cases exploding. After replacement phones also started catching fire, aviation authorities banned them on flights and the company dropped the product for good.

Having received complaints for failing to fix the problem after the first recall, Samsung brought in three private inspectors to help.

Inspectors found damage to the upper corners of batteries made by one manufacturer -- likely sister company Samsung SDI -- and used in the initial batches of Note 7s. That, combined with overly thin separators and high energy density, caused the phones to overheat, Samsung said. The cell-pouch design of the battery also did not have enough space to safely accommodate its electrodes -- another flaw.

In other batches of batteries from a second manufacturer, presumably China-based ATL, used in replacements for the recalled smartphones, the researchers found welding defects and a lack of protective tape in some battery cells.

Though Samsung faulted the batteries from its suppliers, it said it would bear all costs. It was unclear to what extent the battery makers were responsible, as Samsung said only that it had provided "targets," such as capacity and thickness. That may suggest a breakdown in communication between Samsung and its suppliers and in quality control and testing.

The company has recalled 3.06 million Note 7 phones. About 4 percent, or 120,000 units, of the recalled Galaxy Note 7s have not been returned.

Information for this article was contributed by Youkyung Lee and Barbara Ortutay of The Associated Press, Choe Sang-Hun and Paul Mozur of The New York Times, and Hooyeon Kim and Jungah Lee of Bloomberg News.

Business on 01/24/2017

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