RENEE MONTAGNE, HOST:
Samsung's Galaxy Note 7 smartphones are catching fire again. This time, it's the replacement phones that are sparking. Last month, the South Korean company replaced more than 2 million phones and asked users to stop using them. Now, Samsung is not only pulling its Galaxy Note 7 phones from shelves all over the globe, they're also halting its production. And The Wall Street Journal says it's discontinuing the phone. For more on this, we reached Jonathan Cheng of The Wall Street Journal in Seoul, South Korea. He joined us by Skype. Good morning.
JONATHAN CHENG: Hi. Good morning.
MONTAGNE: How big of a hit is this for Samsung? It sounds huge.
CHENG: Well, in dollar terms, we're talking probably $4 to $5 billion, although we won't know until the dust really settles at the end of this month when they report earnings. That'll tell us up until the end of September, and then they have more damage coming up ahead in the couple of months. It's going to cost a lot of money for them to pull back all of these phones, and the lost sales are also going to be quite large as well. There's also the broader hit to the brand here because it's been an embarrassing two-month debacle for them, and they've just basically thrown in the towel and said enough's enough. We're giving up on this device.
MONTAGNE: So the Galaxy Note 7, for those customers who have had it, what are they going to do?
CHENG: Well, they have instructions right now to switch off the device first and foremost and then take it back to the point of sale. And there should be instructions there, although Samsung is kind of making things up as we go along. So things may be different by the time people get to the stores. But as of right now, the plan is take your phone in, and I expect that you'll get a replacement of some kind. It may be another Samsung phone. You may be able to get a refund.
MONTAGNE: And what was or is the technical problem with, in fact, it looks like both versions of this phone? I mean, batteries?
CHENG: Yeah. Well, the initial explanation was that there was a problem with one of their battery suppliers. So what they did was they recalled the original device and issued new devices that they claimed came from another supplier. The problem is that we see the same problem coming up, which either suggests that the initial diagnosis was wrong or that the second supplier also had a problem. Either way, you don't get third chances with a device like this. And I think Samsung recognizes this, and they're facing the music.
MONTAGNE: And how is this playing out among South Koreans? I mean, Samsung is based there. It's a big deal in South Korea.
CHENG: Well, South Koreans tend to look at Samsung as a national champion. They go overseas, they see Samsung phones, Samsung TVs, and they're quite proud of the brand. And I think that there was a sense that a success for Samsung on the global was a success for the country. And moving in the other direction, this whole recall has not been good for the Korean brand in general.
MONTAGNE: Beyond the balance sheet, the recall, how does the corporate culture in Samsung deal with such a massive failure?
CHENG: Well, I think that's step number one. There has been some talk that heads may roll as a result of this. Now, Samsung does have a unique culture where they do do a round of reshuffling at the end of every year. So we're only two months away from that, and there's always a lot of gossip about who's going to stay and who's going to go. So I suspect that this will only heighten that, but it'll be hard to separate out whether or not people are coming or going precisely because of this. It happens a lot every year.
MONTAGNE: And we're not far from the holiday season, as Samsung would know better than anybody. It's an important time for these phone companies to move their products. Do they have a plan B?
CHENG: Well, right now, analysts are talking about whether or not this recall has so damaged the Galaxy Note line that they may just discontinue it altogether - no successor devices next year. They already do have their flagship device, which is their S series. And the S7 that they launched earlier this year are still selling well, and actually it helped insulate Samsung from some of the damage of this recall in the last quarter.
So it's not the end of the world from that perspective. It's also good news for them that their semiconductors, display panels, their other businesses are actually doing quite well.
MONTAGNE: That's Jonathan Cheng of The Wall Street Journal speaking to us from Seoul, South Korea. Thanks very much.
CHENG: Of course. Transcript provided by NPR, Copyright NPR.