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A group of recalled Samsung Galaxy Note 7 phones at a Utah Best Buy

New Samsung Phone Spews Smoke, Empties Plane

Oct. 6, 2016
The FAA, the CPSC and the airline itself could not confirm that the phone in question was a new Note 7, but the owner did — and that could be another blow to Samsung’s hopes to surpass Apple as the market leader.

Samsung Electronics Co.’s global recall of Note 7 smartphones received a fresh blow after a replacement device was blamed for smoke that led to the evacuation of a Southwest Airlines Co. plane.

The Federal Aviation Administration and the Consumer Product Safety Commission are investigating Wednesday’s incident, they said in e-mailed statements. Samsung started replacing Note 7s around the world last month because a flaw in its lithium battery can lead to overheating, posing a burn hazard to consumers.

The phone on the Southwest plane was a replacement for a recalled Note 7, the device’s owner, Brian Green, told The Verge, a technology news-focused website. Green said he picked up the phone at an AT&T Inc. store on Sept. 21, and showed The Verge a photograph of the box that displayed a black square symbol indicating a replacement phone. Bloomberg News interviewed a customer in China last week who said his new Note 7 had exploded less than 24 hours after it was delivered.

Problems with replacements could complicate Samsung’s effort to recover from a recall that is already projected to cost more than $1 billion. The company has spent heavily on marketing its name in past years, and had hoped to get a head start on Apple Inc. by unveiling the Note 7 weeks before a new iPhone hit the market. That advantage has now disappeared.

“The continued news reports about the Note 7 aren’t good for Samsung, especially for its brand reputation,” said Park Kang-ho, an analyst at Daishin Securities Co. in Seoul. “If the noise continues even as phones are replaced, consumers will start raising doubts over the next Galaxy S model, so the faster Samsung settles things, the better for its business.”

The incident came on the same day that activist investor Paul Elliott Singer proposed Samsung separate into an operating company and a holding company. The billionaire wants the Suwon, South Korea-based company to dual-list the former on a U.S. exchange, pay out a special dividend and improve transparency by adding three independent board members.

Samsung shares surged 4.5% to 1.69 million won ($1,512.26) in Seoul, a record close. The stock has recouped all its losses since announcing the recall on Sept. 2. The company is due to announce preliminary third-quarter earnings Friday, a period that includes the start of the recall.

The incident on the Southwest jet, which was waiting to depart from Louisville, Kentucky, involved “just smoke — no explosion or flames of any kind,” Lori Crabtree, a spokeswoman for the airline, said in an e-mailed statement. “A customer reported smoke emitting from an electronic device.”

Crabtree said the airline couldn’t confirm the model of phone. The FAA and the CPSC also didn’t confirm that the device was a new Note 7. Bloomberg News has been unable to contact Green.

Samsung said it was seeking more information and declined to comment beyond an e-mailed statement: “Until we are able to retrieve the device, we cannot confirm that this incident involves the new Note 7,” the company said in the e-mail. “We are working with the authorities and Southwest now to recover the device and confirm the cause. Once we have examined the device we will have more information to share.”

None of the 75 passengers and crew was injured after smoke was reported in the cabin of the Boeing Co. 737 at 9:20 a.m. local time Wednesday, said Natalie Chaudoin, a spokeswoman for the Louisville Regional Airport Authority.

The phone’s owner put the device in his pocket during the flight’s normal safety announcements, said Salvador Melendez, spokesman for the Louisville Fire Department. He felt the device getting warm and by the time he took it out of his pocket it was too hot to handle, Melendez said.

Regulators issued restrictions that allow owners of the recalled Note 7 to take it on a plane only if they turn it off, protect the power switch from accidental activation and don’t stow it in checked baggage.

“I want to reiterate my call for consumers who have the recalled Galaxy Note 7 to keep their smartphones powered down and to immediately take advantage of the remedies being offered by Samsung,” CPSC Chairman Elliot Kaye said in a statement Wednesday. “Consumers should know that one of the remedies is a refund.”

There were at least 17 instances in which batteries smoked or caught fire on U.S. airlines or air-cargo haulers in 2015, according to records kept by the FAA. Another three cases occurred this year through Jan. 15, the most recent date for which data was collected. All but one of those cases involved lithium-based cells. The Galaxy Note 7 batteries are rechargeable lithium-ion.

After the consumer product commission announced the Note 7 recall, the FAA and the Pipeline and Hazardous Materials Safety Administration — which jointly regulate potentially dangerous items on airlines — acted to ensure the recalled phones don’t endanger aircraft.

By Mary Schlangenstein, Alan Levin and Jungah Lee

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Licensed content from Bloomberg, copyright 2016.

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