Samsung (SSNLF): TWO Different Battery Failures on Galaxy Note 7

Samsung held a press event to reveal final Galaxy Note 7 battery investigation findings

Samsung Electronic (OTCMKTS:SSNLF) held a press conference this weekend that was buried by coverage of the U.S. presidential inauguration and the Women’s March on Washington. The company announced the final results of its Galaxy Note 7 investigation, and according to Samsung, there was not one but two separate Galaxy Note 7 battery flaws to blame.

The second was introduced in the replacement battery after the initial issue was discovered.

Samsung’s Galaxy Note 7 Testing Marathon

It was pretty obvious once Galaxy Note 7s started bursting into flames that the battery was involved. But when the problems continued with replacement smartphones using a new battery from a different supplier, suddenly the root cause got murkier.

At the press conference, Samsung explained just how deeply it investigated the Galaxy Note 7.

Everything from the new USB-C port, to wireless charging and even software overload was closely studied and eliminated as a factor. So was Samsung’s manufacturing process. The company built four test facilities (one at each site where it assembled the doomed smartphone) and put 700 engineers to work testing 200,000 Galaxy Note 7s plus 30,000 Galaxy Note 7 battery packs on their own. External testers from three different firms were also added to the teams.

Exploding Galaxy Note 7 Battery Cause: Almost Unbelievable

The result?

It turns out that SSNLF got hit by an almost unbelievable coincidence.

In its rush to take advantage of the expected low-key Apple Inc. (NASDAQ:AAPL) iPhone 7 launch, it used a battery sourced from an unnamed supplier, that had a hidden design flaw. The battery lacked sufficient space to expand and contract — as batteries do — when charging and discharging. As a result, the battery’s electrodes could touch, then short circuit. This issue was not caught by the battery manufacturer.

Samsung pointed out that for its own quality assurance team to have noticed the problem, they would have had to X-Ray the batteries.

Batteries from a second supplier (also un-named) used in some Galaxy Note 7s were fine. They became the go-to replacement batteries once the first wave of trouble began. However, Samsung then pushed that second supplier to dramatically increase its Galaxy Note 7 battery production volume.

The demand to quickly churn out 10 million batteries overwhelmed that company’s production capability and manufacturing defects crept in. A faulty internal weld could cause these replacement batteries to also short circuit and again, the defect was not visible.

Samsung’s Safety Pledge and the Galaxy S8

Samsung took full responsibility for the Galaxy Note 7 battery fiasco, admitting that it had pushed suppliers and the limits of the manufacturing process.

Going forward, the company is implementing an 8-point battery safety check that includes accelerated usage testing, durability tests, X-Ray examination and physically disassembling the batteries.

In recognition that lithium-ion batteries can be extremely volatile, Samsung has also committed to leaving more space around the battery packs in its smartphones going forward. While this runs contrary to the “thinner at all cost” mentality that Samsung and Apple have been pursuing, additional buffer space will protect the battery from impacts.

In an interview with Recode, Samsung’s mobile division head said: “I wish [that] this serves as an opportunity to improve safety of lithium-ion not only for Samsung but for the entire industry.”

Samsung also made it clear that the Galaxy S8 — due for release this spring — will be covered by the enhanced battery safety procedures.

That Galaxy S8 launch will be the critical test of whether SSNLF truly recovers from the Galaxy Note 7 battery fiasco. The chapter is estimated to have cost the company $10 billion, Samsung stock took a hit (although strong performance by its chips division more than made up for that) and its brand was damaged.

If consumers accept Samsung’s findings, apology and pledge to prevent this from happening in the future, the Galaxy S8 could see a sales rebound. If the Galaxy Note 7 battery episode still surrounds the company, Apple’s iPhone 8 stands a chance of clawing back share from Android when it launches in the fall and the Samsung’s place on top of the Android pyramid could ultimately be in doubt.

As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2017/01/samsung-electronics-co-ltd-otcmktsssnlf-galaxy-note-7-battery/.

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