Samsung still doesn't know why its Note 7 batteries failed

A Note 7 with an exploding battery
Image: Reddit/crushader

Samsung still doesn't know why the batteries on some of its Note 7 handsets caught fire, the company admitted Thursday at a shareholder meeting. And if it can't find a solution soon, it may have to delay future product releases, including the upcoming Galaxy S8.

The company held the unusual shareholder meeting to appoint Vice Chairman Lee Jae-yong, son of Chairman Lee Kun-hee, to its board. But the decision to hold an extraordinary shareholder meeting to do so, rather than waiting until its usual Spring meeting, likely has more to do with its battery situation.

During the meeting, Samsung's top executive Shin Jong-kyun apologized to shareholders and customers about the situation, according to the AP, which first reported the news. He said the company is looking into the possible issues that may have caused the problem.

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Samsung's two recalls for its Note 7 devices have been a nightmare for the company, which had occupied the precarious position as the top supplier of Android phones in the U.S. But that could be just the beginning of the smartphone manufacturer's woes if it can't determine the problem.

"What is important is clearly investigating the cause," Lee Seung-woo, an analyst at IBK Securities, said, according to the AP. "It cannot develop a new product on top of the imperfect platform of the Galaxy Note 7, which had all of Samsung's latest technologies."

While the problem is clearly related to the battery, Samsung doesn't know if the issue was the batteries themselves, or the way they interacted with the phone. And either problem could show up in a future handset: If it's the battery, Samsung may want to stop using a certain battery supplier. And if it's an interaction with the phone, Samsung needs to make sure that problem is not replicated in the S8.

Given that Samsung still doesn't know what the problem is, more than a month after the initial recall, it's less surprising that the company wasn't entirely transparent when communicating the issue to customers.

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But that doesn't make the situation less problematic for Samsung, which said it expects to lose $5.3 billion through early next year, according to the AP.

To put that number in context: Samsung's mobile business usually contributes more than half its overall income – last year over the July-September period, the mobile segment generated 2.4 trillion won, or $2.1 billion in operating income. This year it generated just 100 billion won, or $87.9 million.

And again, this could all get worse if it doesn't find a solution soon.

Apple is obviously positioned to take advantage of Samsung's misfortune, but the bigger question may be whether a smaller Android phone manufacturer can dethrone Samsung's standing in the Android marketplace. Google has its own high-end Android offering in its new Pixel handset, and LG's V20 may be well-timed to capitalize on the situation.