Samsung’s Reputation Founders on Rush for Lead in Folding Phones

(Bloomberg) — When Samsung showed off its folding smartphone in San Francisco, engineers back in South Korea popped bottles of bubbly to celebrate the culmination of eight years of research. Two months and an aborted commercial release later, employees are scrambling to figure out what went wrong.

Samsung Electronics Co. on Tuesday scrapped what was to have been a crowning achievement, the launch of the world’s first mass-produced foldable smartphone. Instead of trumpeting its April 26 return to the forefront of global consumer electronics, the tech giant is now investigating how test versions of the $1,980 Galaxy Fold developed problems — including screen failures — after mere days of use.

The about-face allows Samsung to avoid another fiasco like the Note 7 in 2016, when smartphones that had already found their way into consumers’ hands showed a tendency to burst into flames. But the Fold episode shows similar tendencies to rush ahead with new technologies to satisfy corporate goals in spite of engineering risks. Even inside Samsung, employees have to wonder how they so quickly got so close to another debacle.

“One would think that their development and testing process would’ve uncovered many of these flaws, and yet they proceeded to put it in the market anyway,” said Bryan Ma, vice president of devices research at consultancy IDC. “Clearly they can’t afford to have another embarrassing Note 7-like incident, lest they build up a reputation for releasing unreliable products.”

The Note 7 episode triggered a global recall, cost the company billions of dollars and marred its reputation as it battled Apple Inc. in premium devices. Pulling the Fold now lets the Korean giant address potential issues as it races to put out a flexible gadget ahead of Chinese rival Huawei Technologies Co. and Xiaomi Corp.

A Samsung spokeswoman declined to comment for this story. Shares in the company, which hasn’t set another date for a commercial launch, were little changed in Seoul on Wednesday.

Samsung has bounced back since the Note 7 — it remains the world’s largest producer of smartphones and memory chips. But it was counting on the folding devices to extend its lead in mobile and kick-start a stagnating global market.

Unveiled along with the 10th-anniversary version of the flagship Galaxy S phone, the Fold underscored Samsung’s ambitions like no other product it makes. Struggling to ward off hard-charging rivals, the Suwon, South Korea-based giant hoped the gadget would embody its lead in cutting-edge innovation.

Samsung was pushing to be the first to roll out flexible phones to the masses with pre-orders for the Fold –which sports a 7.3-inch screen when laid flat like a tablet — starting in mid-April. That would put it comfortably ahead of rivals, with Huawei planning a bendable-screen release as early as June while Xiaomi only unveiled its foldable prototypes earlier this year.

The Fold had began as a mere display panel project at Samsung. Considered a second-tier TV manufacturer until the 1990s, it rapidly evolved and began to challenge Apple in high-end smartphones around 2010. Yet it continued to battle perceptions of being a “fast adopter” rather than a true innovator: Apple sued Samsung in 2011 for “slavishly” copying the iPhone’s design, triggering a years-long legal battle.

It was around then that Samsung decided to draw on its decades-long prowess in screen technology to build an indisputably original product, and set itself apart. A phone that also unfolds into a tablet could open up a brand new market.

Initial prototypes would crack like a dried sheet of paper if folded about 10,000 times, people familiar with the matter said. Still, Samsung recognized its potential. It started to recruit mechanical engineers who could devote themselves to building a hinge the size of a finger, after the company realized the key to preventing cracks was to evenly distribute pressure. Engineers were encouraged to file as many patents as possible to prevent competition from creeping into a market that didn’t exist at the time, the people said, asking not to be identified as they aren’t authorized to speak publicly.

All seemed on track till last week, when reports of damage to review models started to surface, from a malfunctioning screen after a thin film was peeled off to a display that flickered wildly. Samsung retrieved the units but initially maintained the product would launch as planned on April 26. On Monday, executives convened at their headquarters and debated for hours before finally pulling the plug, the people said.

In initial investigations, Samsung engineers determined that removing the top layer of film — something they hadn’t anticipated users would do — damaged the product, people familiar with the matter said. Its designers had been preoccupied with perfecting the so-called crease where the device folded, they said.

“While many reviewers shared with us the vast potential they see, some also showed us how the device needs further improvements that could ensure the best possible user experience,” Samsung said in a statement. “To fully evaluate this feedback and run further internal tests, we have decided to delay the release of the Galaxy Fold. We plan to announce the release date in the coming weeks.”

Given the small production scale of the Fold, the phone’s problems won’t have the same financial impact as the incendiary Note 7. Samsung forecast it would produce at least 1 million units this year, a fraction of the 291 million smartphones it shipped in 2018. The company’s shares ended little changed in Seoul on Tuesday, the first trading day after the announcement.

But it does the raise questions about its internal processes and whether it’s repeating the same mistakes three years later.

“Although it is rather disappointing Samsung isn’t completely ready for the Galaxy Fold launch even after many years of planning, I think the decision to delay shows the company has learned from its Note 7 debacle,” Anthea Lai, an analyst with Bloomberg Intelligence, said in an email Tuesday.

(Updates with Samsung’s shares in the fifth paragraph.)

–With assistance from Gao Yuan.

To contact the reporters on this story: Sam Kim in Seoul at [email protected];Mark Gurman in San Francisco at [email protected];Min Jeong Lee in Tokyo at [email protected]

To contact the editors responsible for this story: Edwin Chan at [email protected], Peter Elstrom

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