(Correcting story first sent on Thursday without changes to
text. Subscribers please note that the earlier text version went
out with a set of pictures that have since been withdrawn. An
updated set of pictures has been released.)
* Samsung says not considering management change over Note
* Mobile chief under pressure to show quick recovery
* Continued reports of defects undermine Samsung
* Samsung says giving Note 7 full marketing push
By Se Young Lee
SEOUL, Oct 6 Heated meetings, sacrificed
holidays and teams monitoring social media round-the-clock to
track whether there have been any new smartphone fires: Samsung
Electronics is still desperately trying to limit the
damage of a record global recall announced more than a month
Samsung said most of the fire-prone Galaxy Note 7s have been
recovered in major markets, including the United States and
But the trouble is not over for either South Korea's largest
listed company or mobile division chief Koh Dong-jin, who bowed
in a public apology last month, less than a year into the job.
Samsung's hopes of finally getting ahead of the crisis took
a knock on Wednesday. A replacement model began smoking inside a
U.S. plane on Wednesday, the family that owns it said, prompting
fresh investigations by safety regulators.
And on top of that, Samsung is being pressured by one of the
world's most aggressive hedge funds, Elliott Management, to
split the company and pay out $27 billion in a special dividend.
Ahead of the Note 7's August launch, Koh told other
executives how lucky he was: taking charge of the world's
largest smartphone business just before it began to reverse two
years of declining sales and market share.
Instead, he was soon weathering international aviation bans
on the phone, online jokes and criticism over Samsung's handling
of the process. It initially wiped almost $16 billion off the
company's market value.
The crisis is worse than any other the company has faced,
said one Samsung insider, who declined to be named due to the
sensitivity of the subject. "It directly impacts our products,
our brand, and trust with consumers," this person said.
Samsung told Reuters in a statement it was not thinking
about management or organisational changes, and is focused on
the Note 7 replacement process.
Samsung insiders say that the unassuming Koh needs to get
sales moving again so that the company can salvage the fourth
quarter and defend market share against Apple Inc and
"If this doesn't get fixed quickly, everybody loses," said a
second Samsung source, who didn't want to be named due to the
sensitivity of the issue, adding that as yet there was no
finger-pointing at Koh or other executives.
TV ads for the Note 7 resumed in South Korea last week, with
additional incentives for those buying the device in October.
"We will give Note 7 all the support we were going to give
it in the first place," David Lowes, Samsung's chief marketing
officer in Europe, told Reuters. "There is no backing away from
TOO MUCH, TOO SOON?
Some of the toughest criticism levelled at Samsung has been
over its fumbling of the recall.
It warned affected users to immediately turn off their
phones only after the same warning was issued by the U.S.
consumer protection agency. The regulator criticised Samsung for
not following proper recall procedures.
Some consumers also complained about the replacement phones,
either saying they lose power too quickly or run too hot.
In China, where Samsung says its Note 7 uses safe batteries,
some users claimed their phones caught fire, while it was forced
to delay resuming sales in South Korea due to a slow recall
Eric Schiffer, brand strategy expert and chairman of
Reputation Management Consultants based in Los Angeles, said
Samsung needs to woo its customers.
"They need to be very transparent. Invite customers who have
been affected to the plants...let go of whoever was in charge of
this debacle, and accept responsibility and show goodwill by
sending new phones, giving discounts - anything to show the
importance of the customer relationship," he said.
Samsung has formed a dedicated team of public relations
staff to speed up decision making and contain damage, the
sources inside the company said.
"We share information instantly and far more widely than
usual. We try to reply more promptly," said one of them, who
noted how complex it was to deal with a recall across 10 nations
spread across the globe.
Samsung employees say the recall has dominated internal
meetings since the Sept. 2 announcement, whether it be efforts
to get the recalled phones off the streets or deal with a
continued stream of claims and reports of damages or problems.
Long hours, weekends and cancelled tie off are commonplace.
The long Korean thanksgiving holiday - the biggest holiday of
the year - coincided with the U.S. consumer protection agency's
mid-September recall of 1 million Note 7 phones.
Koh, 55, is a Samsung veteran with previous roles in human
resources and research & development. His elevation had been a
shot in the arm for the mobile business, company insiders said,
as he boosted morale by delegating more responsibility to
subordinates and stressing a bottom-up approach.
At a Galaxy S7 launch event in March, he confessed to
sleepless nights agonising over how to rejuvenate a business
battling falling profits and market share losses to Apple and
With signs of a recovery - first-half mobile profits grew by
nearly half - Koh had started to focus more on how to ensure
steady long-term profit growth, according to a person familiar
with his thinking.
That all changed with reports of battery fires weeks after
the Note 7 launch.
Missed sales and recall expenses could cost Samsung nearly
$5 billion this year, analysts say. The risk to its brand is as
Samsung's quarterly earnings forecast on Friday will provide
an initial glimpse of the recall impact.
It has been particularly painful because many insiders
thought the Note 7 could be a landmark product. Pre-orders for
the 988,900 won ($895) device were stronger than expected, and
the recall cost Samsung a month-long sales window before Apple
launched its new iPhone.
The latest twist created by activist fund Elliott may be
unwelcome to Samsung's founding Lee family, which still controls
the company through a complex web of cross shareholdings.
However, for investors generally it has been a shot in the
arm as Samsung shares have recovered to be well above the
pre-recall levels and hit all-time highs on Thursday.
($1 = 1,105.4000 won)
(Additional reporting by Eric Auchard in FRANKFURT, Deborah
Todd and Jessica Toonkel in NEW YORK and Sijia Jiang in HONG
KONG; Editing by Miyoung Kim, Tony Munroe and Martin Howell)