Samsung Electronics took another hit Monday over its recalled Galaxy Note 7 smartphone, acknowledging it was “adjusting production” of the device after major distributors stopped offering replacements because of continued safety concerns.
The South Korean electronics giant has struggled in the wake of its September 2 decision to issue a global recall for 2.5 million Note 7s because of complaints that the lithium-ion battery exploded while charging.
Over the past week reports emerged of replacement units also catching fire, prompting U.S. telecommunications firm AT&T and German rival T-Mobile to announce Sunday a halt to recall exchanges pending further investigations.
Major airlines, air regulators and airport authorities also reiterated bans on passengers using the phones, saying Note 7s should not be powered up or charged on board.
The announcements prompted a steep dive in Samsung’s share price, which fell more than four percent at one point in morning trade. It recovered later to close the day at 1.68 million won ($1,515)– down 1.52 percent.
The market was also reacting to a South Korean media report that Samsung had temporarily shut down Note 7 production lines after discussions with consumer safety regulators from South Korea, the United States and China.
“We are in the process of adjusting production volumes,” Samsung said in a written response to the report.
The company said the move was “to enhance quality control and to enable thorough investigations following the recent cases of Galaxy Note 7 explosions.”
“If the Note 7 is allowed to continue it could lead to the single greatest act of brand self-destruction in the history of modern technology,” said Eric Schiffer, brand strategy expert and chairman of Reputation Management Consultants.
“Samsung needs to take a giant write-down and cast the Note 7 to the engineering hall of shame next to the Ford Pinto.”
With images of charred phones flooding social media, the unprecedented recall has proved a humiliation for the firm.
The trouble with the Note 7 and the handling of the recall, which analysts say could cost up to $2.0 billion, has shone a spotlight on Samsung’s management at a time when it is navigating a tricky generational power transfer within its founding Lee family.
Industry experts have criticized the Lee dynasty for controlling the vast group through a complex web of cross-shareholdings, even though they directly own only about five percent of total stocks.
And Samsung is also under pressure from one of its shareholders, the activist U.S. hedge fund Elliott Management run by billionaire Paul Singer.
In a detailed proposal unveiled last week, Elliott laid out a strategy for streamlining Samsung, splitting the company in two, dual-listing the resulting operating company on a U.S. exchange and paying shareholders a special dividend of 30 trillion won ($27 billion).
Elliott argued that Samsung, currently a maze of listed and unlisted companies with a notoriously opaque ownership and management structure, had suffered from a long-term undervaluation in the equity market.
Despite all its problems, Samsung on Friday issued a stronger-than-expected operating profit forecast for the third quarter, thanks largely to strong sales of memory chips and OLED display panels.