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Samsung's Galaxy Note 7 problems are getting worse

USA TODAY USA TODAY 13/09/2016 Jon Swartz, and Jefferson Graham

Shares of the electronics giant dropped 7% as the week started— wiping out $14.3 billion in market value and extending a slide that has taken shares down 10% this month — as reports of damage from exploding batteries in the smartphone circulated, prompting Samsung officials to urge Note 7 users to turn off their devices and return them.

This weekend, a 6-year-old boy in New York was burned when the Note 7 burst in his hands, reported the New York Post. This follows reports from Florida, South Carolina and Australia, where users have described explosions in cars, homes and hotel rooms.

“The child was watching videos on the phone when the battery exploded," the New York boy's grandmother told the Post.

The reports point to a deepening problem for the Note 7, beyond the 35 instances of faulty rechargeable lithium batteries Samsung initially disclosed when it halted sales and announced a voluntary recall in early September. At the time, it had sold 2.5 million of the devices.

"There is no way to recover this version of the phone. ... Samsung has a huge black eye," says tech analyst Rob Enderle of the Enderle Group. He thinks Samsung might be forced to "kill" the Note 7, and skip to the next version, Note 8.

Late last week, the U.S. Consumer Product Safety Commission warned consumers to stop using and charging their Galaxy Note 7s due to the risk of exploding batteries. That followed a warning from the U.S. Federal Aviation Administration to avoid turning on or charging Note 7s in airplanes. 

In St. Petersburg, Fla., a jeep went up in flames after the owner left his Note charging in the vehicle, according to News10-Tampa Bay. The device is also suspected as the cause of a garage fire in South Carolina, a family told Myrtle Beach's WMBF. A man in Perth, Australia, in a Reddit post, said an igniting device caused about $1,300 in damage to his hotel room.

Samsung's third-quarter results could take a hit of up to $900 million because of the recall, Myung Sub Song, an analyst at HI Investment & Securities, told CNBC. He and other analysts expect shipments of the critically and commercially acclaimed 5.7-inch, pen-based phablet to top 6 million in the third and fourth quarters, down from earlier estimates of 12 million to 15 million.

Samsung, the world's largest smartphone maker, could not be reached for immediate comment.

Its Note 7 woes might also help rivals LG and Apple, both of whom recently announced new smartphones. Apple sold about 14.3 million iPhone 7 and iPhone 7 Plus units the past weekend, up 10% from 13 million for the iPhone 6S last year, estimates Gene Munster, an analyst at Piper Jaffray.

"The gift could not have been more timely from Samsung to Apple," Munster said. "It will be a tail wind for iPhone sales. When you’re debating about which phone to get, you want to hold off until the phone is safe."

Contributing: Eli Blumenthal 

Follow USA TODAY San Francisco Bureau Chief Jon Swartz @jswartz on Twitter.


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