Explosion.

Of Samsung Galaxy Note 7

MD MERAZUL ISLAM KHANSUR

Student ID: KHAM8D2203
University Transfer Program (Stage II) In Engineering (U2EN), ICM
ILS: Interactive Learning Series
Ms. Karen Strobel
Sunday, 5 February 2023
 Explosion. Of Samsung Galaxy Note 7
Introduction: In response to growing competition and shrinking product life cycles,
companies meet tighter product development cycles. In particular, high-technology firms face a
competitive environment and demand substantial inputs of capital, expertise, research, and
equipment. However, shortening product life cycles is accompanied by a higher defective rate.
Samsung Electronics is one of the main electronics companies in the world, with the biggest
market share in terms of sales. It has manufactured a wide array of smartphones, only the
Samsung Galaxy Note 7 has been withdrawn from the market after certain devices exploded after
its launch in 2016. In the past, smartphone manufacturers, such as Samsung, Apple, and
Blackberry, have faced diverse scandals such as smartphone explosions after launch; however,
cases in which a specific smartphone was been withdrawn from the market because of such
explosions are rare. The product crisis may force high-technology firms to recall the products or
even terminate all sales and production, leading companies to be on the edge of collapse.
However, Samsung ended the nightmare by making a termination decision. This corporate event
provides a comparison in response to different product crises, how the market reacts to various
product crises from a reputational firm, and how the event influences its competitors.
Technical Cause of Samsung Galaxy Note 7 Explosion: At the time, Samsung
Electronics explained that the explosion of the Galaxy Note 7 was caused by “a slight problem
that occurred during the battery cell manufacturing process”. Overall, according to the related
article description and the interview with the person concerned, among the two channels
supplying smartphone batteries to Samsung Electronics, China ATL, and Samsung SDI, there
was a problem with the batteries supplied by Samsung SDI. Normal batteries should meet the
two conditions supplied by ATL. First, the negative pole should be short so that it does not arrive
at the round end. Second, the edge should be nearly a right angle. However, the Samsung SDI
batteries did not meet these two conditions and were short-circuited, leading to the eventual
explosion. First, the negative pole arrived at the round end; second, the edge was too smooth.
When a 3500 mAh battery with a size almost identical to the 3600 mAh battery of the Galaxy S7
was inserted into a space that is significantly smaller than that of the Galaxy S7, the battery
short-circuited. (i.e., ref:1)
Anticipation: One of the assumptions is that the event cannot be anticipated; in other
words, information is not accessible before the media or authorities concerned to publish the
information. If the event is anticipated, inside trading might be undertaken then the security price
deviates. Because some people have access to non-public information before the public is
informed, they make “inside trading” to prevent loss or gain profit. As mentioned, significant
abnormal return reveals that the day before the prohibition was published by the FFA, with -
3.16% abnormal return on Table 11. The insider might speculate that the ban from the FFA hurts
Samsung ́s stock price. To prevent the loss, they might decide to sell the stock price before the
information is released. The signal that prohibited information leaks out can be proven by a t-
statistic of -2.12, which is rejected at a 5% significance level. In the case of termination, this
dissertation cannot detect the signal of inside trading, since the negative abnormal return is not
significant before the announcement. (i.e., ref:2)
Cofounding effect: On the other hand, corporate events are unavoidable during the event
windows and estimation windows. Regarding the event, the explosion report was issued on 24th
August 2016, Samsung ́s recall was published on 2nd September, the ban from the FFA was
released on 8th September, the recall from the CPSC was announced on September, and the
termination was declared on 11th October. This dissertation excludes the launch of Galaxy Note 7
on 19th August and the launch of iPhone 7 on 16th September in the estimation window and event
windows, to prevent possible impacts on the results. Several corporate events occurred in the
estimation window: Asian Investment Conference took place from5thto the 8th of April, Apple
reported2Q2016 results on the 26th of April, Apple announced the new iOS App Design on the
18th of May, and Samsung announced the 2Q2016 Earnings Conference Recall; however, these
events are not closely connected to the events that this dissertation researches. In addition to the
estimation window, this dissertation also investigates the confounding effect in the event
windows. Samsung organized Samsung Group Asia Conference from 29th August to 2nd
September, Merrill Lynch 2016 Korea Conference took place from 6th to 7th September, and
Apple started to reinvest in wireless headphones on 7th September. Nevertheless, these events are
weekly relevant to Samsung ś recall and authorities-concerned announcement. Thus, the
confounding effect is absent. During the event window of termination, Samsung issued Earning
Guidance for 3Q2016 on 7th October, but Samsung ś security does not have a significant
abnormal return on this day. Thus, this forecast of the corporate ́s performance did not have a
strong impact on the stock price; moreover, it is not strongly relevant to the termination event.
(i.e., ref:2)
Conclusion: Even though Samsung has to count a huge amount of loss, they prioritize
human safety and took important steps to prevent these accidents. Nowadays large tech
companies are becoming more aware of human safety than ever before.

References
ref: 1. Jinhyo, Y., JeongHwan, J., KyungBae, P., and Xiaofei, Z., (2018), Benefits and Costs of
Closed Innovation Strategy: Analysis of Samsung’s Galaxy Note 7 Explosion and
Withdrawal Scandal, Journal of Open Innovation: Technology, Market, and Complexity,
page 7 (3.3), doi.org/10.3390/joitmc4030020.
ref:2. Yen, Y.,(2018), How did the explosion of Galaxy Note7 affect Samsung and its
competitors? Financial Analysis of Corporate Events, CATOLICA LISBON BYSINESS
& ECONOMICS BI NORWEGIAN BUSINESS SCHOOL, page 27-28, Retrieved from
https://core.ac.uk/reader/161847711.
I have read and understand the information posted on Moodle, regarding Academic
Integrity.
MD MERAZUL ISLAM KHANSUR
05th FEBRUARY 2023