Samsung’s China Manufacturer Will Replace 4 Million Recalled Batteries: Report

2 min read

Samsung Galaxy Note 7 users were warned by the U.S. Consumer Safety Commission on Friday to not operate the phones, adding to a list of grievances for Samsung, which saw $11.7 billion USD wiped from their market capitalization since a recall was announced.

The company initiated the voluntary move on September 2nd when a small number of the devices reportedly exploded into flames due to a fault in their lithium ion batteries.

Prior to the U.S. regulatory warning, international airlines and airline authorities jumped to ban use of the phones in flights, as well as banning them in cargo holds.

There is one potential beneficiary of the multi-billion dollar USD snafu however; Samsung’s China-side battery manufacturer ATL.

Chinese models of the phone were not recalled, due to differences between those manufactured outside China (for markets including South Korea and the U.S.), and those inside China, manufactured by ATL.

According to reports from local Korean outlets citing industry sources, ATL is expected to take over manufacturing for the millions of batteries that are being reclaimed by Samsung as part of the voluntary recall.

This puts ATL in the precarious position of being the only battery supplier for a premium phone by the world’s largest smartphone brand. Samsung has previously indicated that it will seek to launch a third manufacturing partner or operation.

Unlike Apple, which relies on a large chain of suppliers, Samsung has a series of wholly-owned manufacturers, making ATL a minority supplier. According to Yonhap News Agency, Samsung sourced 70 percent of the batteries for the Galaxy Note 7 though their own subsidiary, and 30 percent through China’s ATL.

Samsung has reportedly submitted an order to ATL for four million replacement batteries for the Samsung Galaxy Note 7.

While the surprise upswing in orders will yield positive returns for the Chinese manufacturer, a future slump in Samsung sales due to fallout from the recall could take a bite out of their business.

The recall could also push Samsung to more quickly find a third alternative manufacturing partner for phone batteries, potentially cutting into ATL’s bottom line.

Samsung’s market share has been slipping gradually in China over the past two years, as cheaper local Android alternatives flood the market. The company released strong profit figures in their July earnings, with healthy gains in their chip business.

They also pulled the release of the Galaxy Note 7 forward by almost two months in a ploy to launch it before the Apple iPhone 7. Investors responded to positively at the time, though it’s a move that’s since been called into question due to the recall.