Samsung to put Galaxy Note 7 production on pause

Samsung Electronics Co. has temporarily halted production of its troubled Galaxy Note 7, according to a person familiar with the matter, the latest setback for the South Korean technology giant as it struggles to manage a recall of 2.5 million smart phones.

Samsung’s move comes after a spate of fresh reports of overheating and fires with phones that have been distributed to consumers to replace devices that may catch fire.

The production halt underscores the growing seriousness with which Samsung is dealing with its largest-ever product recall. Last month, Samsung officials shrugged off reports of overheated batteries, calling the indents “isolated cases” related to issues of mass production.

In a separate statement a few days later, it said in response to reports about abnormal battery charging levels in its replacement phones that “the issue does not pose a safety concern.”

While Samsung hasn’t confirmed the latest reports of problems with its replacement phones, it said in a statement Friday in response to one report that it would “move quickly to investigate the reported case to determine the cause and will share findings as soon as possible.”

“Samsung understands the concern our carriers and consumers must be feeling after recent reports have raised questions about our newly released replacement Note 7 devices,” the company said.

The new incidents raise questions about Samsung’s initial explanation of the battery problem. Last month, the company said it was caused by one of its battery suppliers, which the company says it has stopped using and hadn’t used for any of its replacement phones in the U.S.

On Sunday, AT&T Inc., Verizon Communications Inc. and T-Mobile US Inc. said that they would stop issuing new Galaxy Note 7 smartphones to replace the ones turned in by U.S. customers, adding a further twist to the already complex recall process.

AT&T, one of the biggest distributors of Samsung phones in the U.S., said Galaxy Note 7 customers can return their phones for different models while Samsung and U.S. safety authorities investigate why several phones melted in the past week.

T-Mobile US said it is suspending all sales of the Note 7 and halting exchanges for replacement Note 7s. Customers can still bring in their Note 7 phones for a refund or a different device.

Verizon said any customer who feel safe with a replacement Note 7 smartphone could exchange it for another smartphone.

At least four Samsung phones emitted smoke or caught fire during the week, including one on a Southwest Airlines Co. flight before takeoff. It wasn’t clear if those affected were Note 7 devices, or if the problems were due to faulty lithium-ion batteries.

“We’re no longer exchanging new Note 7s at this time, pending further investigation of these reported incidents,” AT&T said in a statement.

Samsung is working with authorities, including the U.S. Consumer Product Safety Commission to investigate the new incidents, a Samsung spokeswoman said Sunday.

“We are working diligently with authorities and third-party experts and will share findings when we have completed the investigation,” the company said in a statement. “If we determine a product-safety issue exists, Samsung will take immediate steps approved by the CPSC to resolve the situation.”

Regarding the suspensions, Samsung added, “We respect their decision.”

The CPSC doesn’t know if the most recent incidents involved replacement Note 7 phones, a spokesman for the agency said Sunday. “We would like to speak with each customer and assess what happened to their phone,” said CPSC spokesman Scott Wolfson. “It is important for consumers to be reminded that a full refund is one of the options available under the recall.”

In addition, air passengers have been told not to turn on their Galaxy Note 7 devices during flights, regardless of whether they are replacements.

Samsung’s devices aren’t the only electronics to catch fire. Lithium-ion batteries, which power many modern mobile devices in addition to Samsung’s, have been known to catch fire. The Federal Aviation Administration has previously said they have recorded 171 incidents involving batteries aboard planes from 1991 to January of this year.

Samsung launched a recall of the 1 million Note 7 phones in the U.S. last month after discovering that the lithium-ion batteries could explode while charging. Under the recall, which was hampered by misinformation and false starts at the beginning, consumers could exchange their Note 7s for a new device or obtain a refund.

The recall seemed to be finally going smoothly until the Southwest Airlines incident last week. Customers have since reported other phones catching fire or melting even when not plugged in.

On Friday, a Galaxy Note 7 overheated and started smoking in the hand of 13-year-old Abby Zuis, according to her father, Andrew Zuis, of Farmington, Minn. The device was a replacement phone that he got from a Verizon store at the beginning of the recall, he said.

Another Samsung customer, Shawn Minter, of Richmond, Va., said he was awakened Sunday morning by his replacement Note 7 phone making a loud noise and emitting smoke and flames. “I’ve never seen anything like that in my life,” he said.

“We are taking every report seriously,” Samsung said in a statement.

The decision by the carriers to stop offering replacement Note 7s comes after U.S. phone carriers on Friday said they would allow customers to replace their phones a second time.

After offering to distribute new replacement phones on Friday, Verizon on Sunday said the company is completely out of stock of Note 7 devices. Customers can place an order for a new Note 7, or exchange it for another device, a spokeswoman said.

In recent years, Samsung has moved the bulk of its smartphone manufacturing operations to Vietnam. Its smartphone battery cells are made by suppliers in Cheonan, South Korea and Tianjin, China, but the company packages them in Vietnam.

So far, Samsung’s phone recall debacle hasn’t hurt its bottom line or its stock price. On Friday, the company said it expected a slight improvement in operating profit for the third quarter, including recall costs, compared with a year earlier.

As the phone recall seemed to be gaining traction, Samsung’s stock quickly recovered from an initial 13% slide after initial reports of smartphone explosions, and were pushing up to record highs last week.

Shares closed on Friday at an all-time high, after gaining more than 30% this year. But signs over the weekend that Samsung hasn’t yet put the crisis behind it sent shares down more than 3% in Monday morning trading in Seoul.

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