Seoul - Shares of Samsung Electronics fell the most in almost three weeks after US regulators and the company itself warned users of its Note 7 smartphones to immediately turn off and stop charging them.
The cautions were issued by the US Consumer Product Safety Commission and Samsung, which are also in talks on an official recall of the devices as soon as possible. Aviation authorities around the world have also called on passengers to stop using the devices during flights. About three dozen of the phones, released just three weeks ago, had batteries that caught fire or exploded.
The troubles come at a critical time for Samsung. The company rolled out the Note 7 last month to give it a head start on Apple Inc.’s new iPhone, which were unveiled last week. But that advantage has now disappeared. Samsung shares fell as much as 5.5 percent, the biggest intraday drop since August 24. Including a 3.9 percent decline on Friday, Samsung has shed about $19 billion in market value. Battery-making affiliate Samsung SDI fell as much as 5.9 percent to 96 500 won, the lowest on an intraday basis in five months.
Read also: Samsung halts sales of Galaxy Note 7
The recent introduction of new products by the two leaders of the global smartphone market are critical to their competition, Bloomberg Intelligence analyst John Butler said in an interview.
“Samsung’s troubles, and they’re meaningful at this point, are a positive development for Apple and its competitive position vis-a-vis Samsung,” Butler said. “We’re rolling quickly into the holiday quarter, so Samsung has to move quickly to recall the Note 7 devices with faulty batteries and get replacement units to people who already bought this model.”
The Suwon, South Korea-based company has already announced a voluntary, worldwide recall of all 2.5 million of the smartphones it has already shipped, at a cost to the company estimated at as much as $1 billion. On Saturday, Samsung told users in South Korea to stop using the devices and to bring them to the company’s service centres. Customers can rent replacement phones until Note 7’s with new batteries become available on September 19. It wasn’t clear whether the fixed Note 7 models would also be offered elsewhere on that date.
Almost all CPSC recalls are done voluntarily in conjunction with a company and the scope of any action on the Note 7 may be identical to what Samsung has already suggested to consumers. But once the agency becomes involved, it triggers additional protections for people. For example, US law prohibits the sale or resale of any recalled item once CPSC acts.
Read also: Samsung trips on quality control
The CPSC action came as aviation regulators in several countries and airlines advised passengers against turning on or charging the devices during flights.
The European Aviation Safety Agency on Friday issued such a warning and cautioned against packing them in checked bags, according to a posting on its website. That followed a non-binding warning issued on Thursday by the US Federal Aviation Administration.
India’s Directorate General of Civil Aviation banned switching on the phones during flights, or placing them in checked bags that aren’t carried in the cabin. Singapore Airlines has barred travellers from powering up or charging the devices on flights, the company said in an email.
Following the FAA’s statement, US carriers were taking a variety of steps. Delta Air Lines posted a notice on its website telling passengers to comply with the FAA’s guidance. Southwest Airlines will share information on its website and social-media channels to make passengers aware of the FAA recommendations, said Lisa Tiller, a spokeswoman for the Dallas-based carrier. Spirit Airlines Inc. said all passengers will receive a copy of the FAA notice 12 hours prior to flying.
American Airlines Group and JetBlue Airways said they are consulting with the FAA on the issue. JetBlue added that it is trying to get more FAA guidance for its employees so they can answer customer questions.
The Airlines for America trade group, which represents most large US carriers, said in an e-mail it is closely monitoring the situation.
The actions are the latest to focus on the risks of lithium-based batteries on aircraft, which have been linked to three accidents on cargo carriers, two of which were fatal. The FAA has logged dozens of more minor incidents in which the batteries caught fire, smouldered or exploded on airline flights.
The United Nations’ International Civil Aviation Organisation in February voted to ban passenger airlines from carrying bulk shipments of rechargeable lithium-ion batteries, such as those on the Samsung device. The group stopped short of placing restrictions on batteries contained in devices because any fires that occur are much easier to extinguish.
The Air Line Pilots Association, the largest flight-crew union in North America, said the recent incidents underscore the need for greater controls on lithium-battery shipments.
“These batteries can self-ignite, explode, and are unresponsive to halon, the primary fire-extinguishing agent used aboard aircraft,” the union said in an email.
* With assistance from Mary Schlangenstein, Michael Sasso and Mark Gurman
BLOOMBERG