Models display the iris scanner features of the Samsung Galaxy Note 7 smartphones during its launch event at the company’s headquarter in Seoul. Pic: AP

Samsung loses market share of $22bn following airline Galaxy Note 7 bans

OVER the weekend, Samsung has been urging users in South Korea to stop using the Galaxy Note 7 devices, after announcing a global recall of 2.5 million handsets. Several dozen owners of the smartphones had their batteries explode or catch fire, sparking the recall.

While the South Korean smartphone-maker will be sending out Galaxy Note 7’s with new batteries by September 19, it seems that heavy damage has already been done as airlines have begun banning passengers from bringing the phone on the plane.

According to Bloomberg, Samsung’s woes – especially in its company financials – have just begun as it reportedly lost a whopping US$22 billion in market value over the course of two days.

SEE ALSO: S.Korea: Samsung to recall all Galaxy Note 7 smartphones after explosive reports

A researcher with the International Data Corporation’s (IDC) device research unit told Bloomberg that the situation is likely to worsen for Samsung if airlines decide to ban all Samsung phones when security personnel have problems differentiating between models. He said that if that’s the case, the Galaxy Note 7 could drag down the rest of Samsung’s portfolio.

Athena Lai, an analyst with Bloomberg Intelligence, noted that the stock had likely plunged 11 percent now, instead of back when the phones were recalled, because investors saw that rising regulatory risk may be hurting the company more than expected.

“Remember, they said that the company expected the cost to recall the Note 7 may be one billion, but that was assuming that consumers will ask for a replacement unit — but now they’re asking for full refunds because they can’t bring it on the plane. You have to bear in mind that the Note 7 is targeting business users so it could be a big deal,” she said.

Lai further commented that due to America’s uncompromising regulatory environment, Samsung could stand to lose their standing in the U.S. market – which could yield disastrous results, despite the strength of the company’s brand equity.

“We all know that regulators in the U.S. are pretty strict, so if Samsung loses their foothold in the U.S. market, it would hurt at least 20 percent of the smartphone sales according to IDC’s estimate. The impact on the brand equity would be more than earnings, given that investors will be willing to pay a premium on the brand equity,” she said.

“If we look at the valuation after the plunge, still Samsung is trading nine times forward earnings, we called that in 2013 when it lost market share to Apple, it lost as much as eight times, so there could be more to come.”

It may seem that the fate of Samsung’s Galaxy Note 7 is now in the hands of the consumer and whether they’ll be up to the task of defending their handset to airport personnel. What’s more likely to happen though, is that consumers will just buy a new phone – likely with a different brand, and in that case, Samsung will have a heavy price to pay for their product blunder.