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After they began hearing earlier this year that the iPhone 7 would look just like the previous two models, the top brass at Samsung Electronics, including its mobile chief D.J. Koh, have made the decision to outmaneuver Apple and move up the launch of the Note 7 to early August. In hindsight, it was a risky, ill-fated move that has backfired and damaged Samsung’s brand and reputation.

In its desire to beat the “dull” iPhone 7 to market, Samsung pushed suppliers to meet tighter deadlines which caused problems with the handset’s battery, according to a report Monday from Bloomberg citing “people familiar with the matter”.

Twenty years ago, Samsung’s chairman grew so frustrated by faulty mobile phones that he did something that has become part of the company’s history and culture:

“He piled up thousands of the devices and lit the whole heap ablaze,” writes Bloomberg.

“Never compromise on quality, he exhorted the workers watching, putting Samsung on course to become the top seller of mobile phones in the world.”

The problematic 3,500 mAh Note 7 battery (the previous Note has a 3,000 mAh battery) was supplied by Samsung SDI, in which Samsung Electronics holds a twenty percent stake and that counts Apple as a client.

From the report:

As the launch date approached, employees at Samsung and suppliers stretched their work hours and made do with less sleep. Though it’s not unusual to have a scramble, suppliers were under more pressure than usual this time around and were pushed harder than by other customers, according to a person with direct knowledge of the matter.

One supplier said it was particularly challenging to work with Samsung employees this time, as they repeatedly changed their minds about specs and work flow. Some Samsung workers began sleeping in the office to avoid time lost in commuting, the supplier said.

They approved a launch date ten days earlier than last year, on August 3 this year versus August 13 last year for the previous Note. A few days following the Note 7 introduction, reports began cropping up that the phone’s batteries were bursting into flame.

Realizing rushing to beat the iPhone 7 to market has backfired, Samsung executives “were in shock” and demanded to know what went wrong.

The initial conclusions indicated an error in production that put pressure on plates within the battery cells, which in turn brought negative and positive poles into contact, triggering excessive heat that caused the battery to explode.

An engineer wrote on the company’s internal online bulletin board a message, saying “Please recall all Note 7s and exchange them with new ones. I don’t have to get my profit sharing. It’s humiliating.”

The message prompted Samsung’s mobile boss to apologize to employees and take swift action the next day: he held a grim press conference in Seoul to announce that Samsung would replace all 2.5 million phones shipped so far.

“For us at Samsung, to earn consumers’ trust back is very important,” the company said in a statement. Additionally, the company’s top U.S. executive Tim Baxter issued a video apology to Note 7 customers, admitting that battery defects actually caused Note 7 fires.

“With battery cell defects in some of our Note7 phones, we did not meet the standard of excellence that you expect and deserve,” he said”. “For that, we apologize, especially for those of you who were personally affected by this.”

“To those of you who love the Note, we will work every day to earn back your trust through a number of unprecedented actions,” Baxter said.

He went on to confirm that new Note7 replacement devices will be available in the United States at most retail locations no later than September 21, 2016. Specifically, Note 7 sales will resume in Korea around September 28, but Samsung has yet to specify when global sales would resume.

The South Korean firm has since stopped buying Note 7 batteries from its SDI affiliate, shifting purchases to Amperex Technology, a unit of Japan’s TDK Corp.

“After extensive testing and as reported to multiple regulatory agencies, this issue is isolated to the battery cell from one supplier only,” the company said in its statement. “All replacement Galaxy Note 7 devices will have batteries from other suppliers.”

Following recent reports about exploding Note 7 in Chinese media, Note 7’s new battery supplier Amperex Technology Limited conducted a joint investigation with Samsung which determined that the incident was not directly linked to their batteries.

“According to the burn marks on the sample, we surmise that the source of the heating comes from outside the battery, and it’s very likely that there was an external factor causing the heating problem,” the battery maker said in a statement cited by Reuters.

Last week, Samsung announced a recall of the 1,858 Note 7 phones in China which were distributed before its official September 1 launch. The company said the phones sold through the official launch used batteries different from those in reported fires.

The worldwide Note 7 recall is estimated to cost Samsung as much as $2 billion.

In your view, did the exploding None 7 incident tarnish Samsung’s reputation?

Source: Bloomberg