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Samsung still in the dark over Note 7 issue as heir joins board

Published 27/10/2016

Samsung reported a sharp fall in its quarterly earnings as the unprecedented recall and discontinuation of the Galaxy Note 7 smartphones wiped out its mobile profit (AP)
Samsung reported a sharp fall in its quarterly earnings as the unprecedented recall and discontinuation of the Galaxy Note 7 smartphones wiped out its mobile profit (AP)

Samsung is still trying to figure out why its Galaxy Note 7 smartphones were catching fire, the tech giant said, as shareholders appointed the grandson of the company's founder to its board.

The shift of 48-year-old vice chairman Lee Jae-yong, chairman Lee Kun-hee's only son, to a bigger role comes at a crucial time for Samsung, South Korea's biggest company.

Samsung Electronics, the world's largest maker of smartphones, memory chips and TVs, reported a sharp fall in its quarterly earnings after the unprecedented recall and discontinuation of fire-prone Galaxy Note 7 smartphones wiped out its mobile profit in the last quarter.

Investors will be keen to hear how Mr Lee, whose grandfather founded Samsung in 1938, plans to restore Samsung's image and win back trust after the Note 7 - initially launched as Samsung's weapon against the iPhone - was scrapped less than two months after its launch.

The company reported dozens of fires of both the original Note 7s and replacement phones given to customers who handed in recalled handsets.

Samsung has taken heat for its handling of the recall and its hasty and apparently incomplete initial investigation into what was going wrong with the premium smartphones.

Samsung's top executive Shin Jong-kyun apologised to shareholders and customers on Thursday, saying the company is looking into all possible issues to pin down why the phones were overheating.

The company's decision to hold an extraordinary shareholder meeting to appoint Mr Lee to the board, instead of waiting until its regular spring meeting, suggests a sense of urgency: the company cannot launch its next flagship phone, the Galaxy S8, without resolving the Note 7 mystery first.

"What is important is clearly investigating the cause," said Lee Seung-woo, an analyst at IBK Securities.

"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."

Samsung said it expects the Note 7 fiasco to cost it at least 5.3 billion US dollars (£4.3bn) through early next year.

Lee Jae-yong is thought to have been making key decisions for Samsung since a heart attack in 2014 left his father, now 74, unable to oversee the company. But he largely handled internal management and meetings with VIPs.

Lee Kun-hee resigned from the board of Samsung Electronics in 2008, facing investigation over alleged tax evasion and other financial violations. His son's appointment to the board was long expected, but is raising questions.

Lee Jae-yong was Samsung's chief operating officer from 2010 to 2012.

Some South Koreans have opposed giving him a board position because of questions about how he amassed billions of dollars of personal wealth and doubts over the performance of businesses he has run.

"He has never successfully demonstrated that he is eligible to be a board member," said Lee Jee-soo, a lawyer and head of the Law and Business Research Centre.

"Just because he was born as the son of Lee Kun-hee, he is joining the board."

AP

Press Association

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