The Galaxy Note 7 was a dual device with a "glorious screen," as one reviewer put it, elegant curves, an unparalleled camera and a nifty S-pen -- and it was so water-resistant it could reportedly withstand 30 minutes in the bathtub. With Samsung's announcement Tuesday that it was stopping all sales and production of its $882 smartphone, the Note 7 -- which debuted Aug. 19 and was hailed as the company's best to date -- met an end that seems to have no end in sight.
The financial reckoning for Samsung, pegged at a $1 billion loss in early September, keeps climbing -- to a $2.3 billion profit loss for the quarter ending Sept. 30, to $3.1 billion for the six months through March, to predictions this week of $17 billion in lost revenue. By Friday, the financial press was mulling over the impact of the Note 7 disaster on everything from the smartphone industry to semiconductor manufacturers to Vietnam exports.
Widespread criticism of Samsung's handling of the crisis, on matters ranging from the visibility of its warning on the company homepage to its lack of coordination with the U.S. Consumer Product Safety Commission, certainly doesn't mitigate the brand damage -- and not just to the Galaxy Note 7.
"This is a dramatic blow to their credibility. I am a Samsung Galaxy S 7 user. There is absolutely a thought going through my mind now about when my phone will catch fire that I didn't have that a month ago," said Alan Lepofsky, principal analyst at Constellation Research. "To be completely honest, I have started to look at the Google 6 phone. There must be millions of people who feel the same way."
Limits of innovation?
That has to be deeply disturbing for a company that has elevated itself as a leader in the Android market and an alternative for the iPhone crowd. "The big challenge to iPhones was Galaxy -- the 7s were a great device, and people were extremely excited about them," said Lepofsky, who covers enterprise collaboration and mobility. That's no mean achievement in the cutthroat and increasingly saturated smartphone market, where these days "phones are 90% the same," he said. "There are icons on the screen, a GPS for Google Maps and a camera on the phone. It plugs into your wall and you live your day."
With the Galaxy Note 7, Samsung's goal was to differentiate itself even more in the high-end market by appealing to a business user with a phone that was anything but generic.
"The goal here was to make a mini computer. Samsung really wants to not just impact the iPhone; they really want to impact the tablet market. Whether it is an iPad or an iPad mini -- Samsung knows that what you want to do is put that full getting-work-done component into people's hands," Lepofsky said.
The Galaxy Note 7 debacle may be a cautionary tale about the perils of too much innovation, but Samsung is hardly alone in pushing the limits, said Constellation Research colleague Holger Mueller.
"I wouldn't single Samsung out. All the smartphone makers are pushing innovation," Mueller said. "But of course there are limits -- and if you move things too fast, or you don't produce things well enough, if you maybe outsource your battery management, or you don't do quality management well enough, then problems happen."
Indeed, absent the forensics on the phone or any official word from Samsung on how the lithium ion battery in the Note 7 was tested, competitive pressure is as good a reason as any for why this happened, several experts said.
"There is an unsubstantiated industry rumor that Samsung was trying to beat the release window for the iPhone 7, and that perhaps they compressed some of their steps along the way developing this," said J.P. Gownder of Forrester Research. He said Samsung knew the iPhone 7 was going to be an incremental upgrade. Beating Apple to market with a more innovative product could pay big dividends. "I have no way of verifying if that was the case, but if it were then this is a high-risk, high-reward venture that didn't pay off."
Lepofsky took the same view. "We've had a lot of internal debates here at Constellation about what happened … and the general consensus is that Samsung certainly rushed things along due to the launch of the iPhone 7," he said. "I don't think there is anyone denying that there was a huge impact on their time schedule to get their greatest phone out prior -- hopefully a month, six weeks prior -- to the launch of the iPhone 7 to disrupt that."
Tuong Huy Nguyen, principal research analyst at Gartner, said the current "cadence of the product releases" makes an incident like the Samsung Note 7 disaster predictable, if not inevitable. The industry expectation is a new version every 12 months. "Everyone is on that cadence -- Apple, Samsung, Huawei," Nguyen said.
But the rush to market "is less about a technology limitation and more of a quality control issue," he said. Meeting the "deadline no matter what" can overshadow the need to roll out products safely and effectively.
Forrester's Gownder agreed. "I think there is this lesson of being really certain about the fundamentals of a technology. From a technologist perspective, a very deep process to QA -- a sound quality assurance process -- is critical," he said. "A bad rollout can really undercut the sense of trust and belief in the vendor -- whether that is an external vendor or an internal vendor in your company, so there are some powerful lessons here for CIOs to keep in mind."
There's another heads-up for CIOs, said Constellation Research's Lepofsky: Mobile has reach. "Our mobile device dominates our day.”
Checking email, social networking, using the company's SharePoint app -- these mobile maneuvers are now par for the workday, he said. But phones also open garage doors, shut off lights, lock the front door. Paired with all the wearables coming -- sending information to our phones from our Fitbits, shoes, glasses and other accoutrements -- it's easy to see why Samsung and others are fixated on having phones be more like giant servers.
"Phones are the input control device for our lives," Lepofsky said. "To answer your question why Samsung is pushing so hard and why quality lifecycle tests are failing, it's because for all these guys, control over these aspects of our lives is the secret sauce."
CIO news roundup for week of Oct. 10
The Samsung Note 7 disaster was not the only story burning up the Interwebs:
Measuring the gig economy. In a report released Monday, researchers at the Brookings Institution used a novel way to determine the size of the gig economy and how services like Uber and Airbnb are affecting the economy. Researchers Mark Muro and Ian Hathaway gained insights by studying an obscure set of Census Bureau and Internal Revenue Service data about "non-employer" firms -- businesses that earn at least $1,000 a year in gross revenues but don't employ any workers. There were 24 million non-employer firms in the U.S. in 2014, compared with 15 million in 1997, according to the report. In addition, between 2010 and 2014 the number of non-employer firms in the ground transportation industry alone grew at an annualized rate of 69%. "Though imperfect, these data, we believe, point in the direction that common sense suggests: The platform economy for rides and rooms is now sizable and growing rapidly in many larger metro areas," the researchers stated.
Decline in PC shipments. There were 68.9 million personal computers (PCs) shipped worldwide in the third quarter of 2016, marking a 5.7% decline from the third quarter of 2015, Gartner reported Tuesday. This marks the eighth consecutive quarter of decline in PC shipments, according to the Gartner report. "Consumers in emerging markets primarily use smartphones or phablets for their computing needs, and they don't find the need to use a PC as much as consumers in mature markets," said Gartner analyst Mikako Kitagawa in a statement. Lenovo is the worldwide market leader based on preliminary PC shipment estimates for the third quarter of 2016, followed by HP Inc. and Dell, the report stated.
Amazon stores are coming. Seattle-based online retail giant Amazon is planning on opening brick-and-mortar stores that will sell perishable items like produce, milk and meat, the Wall Street Journal reported Wednesday. The initiative, known as "Project Como," would only be available to Amazon customers who are signed up for its grocery subscription service called Fresh, the report states. According to a GeekWire report, Amazon may be just weeks away from opening its first drive-up grocery location in Seattle. The company opened its first brick-and-mortar bookstore in Seattle last year.
Assistant editor Mekhala Roy contributed to this week's news roundup