Samsung Stops Making Galaxy Note 7 Smartphone

.

SEOUL – Samsung Electronics announced Tuesday that it would permanently discontinue production and sales of its embattled Galaxy Note 7 smartphone, pulling the plug on a premium product whose botched recall has brought headaches to consumers and inflicted damage on the Samsung brand.

Samsung said in a filing with South Korean regulators that it would permanently cease production and sales of the device, following a string of reported incidents in which supposedly safe replacements of the premium smartphone overheated and in some cases caught fire.

“Taking our customer’s safety as our highest priority, we have decided to halt sales and production of the Galaxy Note 7,” the company said.

The move comes on a day when investors wiped off about $17 billion from Samsung Electronic Co.’s market capitalization, as investors digested the possibility that the South Korean smartphone giant could discontinue the entire Galaxy Note series, more than a month after it launched its initial recall of the smartphone.

Samsung shares tumbled 8%, its biggest one-day decline in eight years, far outpacing the broader South Korean market’s 1.2% pullback, after Samsung told Galaxy Note 7 users world-wide to immediately switch off their devices Tuesday.

Earlier the company said it was asking all telecom carriers and retailers that sell the Note 7 globally to stop sales and exchanges of the device pending investigation into the latest incidents. Major U.S. carriers already had made that move on their own.

Consumers with either an original or a replacement Note 7 should power down and stop using the device, said Samsung.

As the recall has gone from bad to worse for the world’s largest manufacturer of smartphones by shipments and sales, stock analysts have begun tallying up the likely financial hit for Samsung.

Daniel Kim, a Seoul-based analyst for Macquarie, estimated that the potential losses to Samsung could reach 3.1 trillion Korean won ($2.8 billion) for the last three months of the year, which would be enough to wipe out the entire mobile division’s operating profits for the fourth quarter.

Mark Newman, an analyst for Sanford C. Bernstein in Hong Kong, argued that Samsung should even consider ditching the Galaxy Note series altogether, meaning no Galaxy Note 8 next year. The company also has its flagship Galaxy S series to fall back on, which outsells the Galaxy Note at a rate of roughly three to one.

“Samsung needs to act swiftly and move on to protect their brand image,” Mr. Newman told clients on Tuesday. He also said the fresh round of troubled smartphones “begs serious questions” about Samsung’s original explanation for the phone debacle, which it blamed on one bad battery supplier that it has since cut out of its production process.

As Samsung’s stock was tanking on Tuesday, South Korea’s finance minister Yoo Il-ho told reporters after a weekly policy meeting in Seoul that the government would closely monitor Samsung’s recall. Mr. Yoo said that a halt in sales could negatively impact the country’s export figures, according to his aides.

According to South Korea’s trade ministry, Samsung’s mobile handsets account for about 2% of the country’s annual total exports.

In its home market of South Korea, Samsung made a bid to salvage customer loyalty, pledging a credit of 30,000 won ($27) to customers who switched to another Samsung smartphone.

Tuesday’s developments were the latest twists and turns in a global recall of 2.5 million smartphones that has been marred by repeated missteps, sowing confusion among consumers, airlines and telecoms operators.

Meanwhile, in China, a big smartphone market where Samsung’s fortunes have gone south in recent years, regulators formally launched a recall of the Galaxy Note 7, overturning Samsung’s initial stance that reported explosions in that market were faked.

Chinese regulators on Tuesday said that they had identified 20 cases of overheating or explosions involving the Galaxy Note 7 and urged users to switch off their devices. Samsung had previously excluded mainland China from its global recall of 2.5 million smartphones, stating that its devices there were safe since they didn’t include batteries from the supplier that it had initially identified as the source of the problem.

Samsung’s slow recall isn’t likely to do the company any favors in mainland China as it tries to claw back market share from local rivals Huawei Technologies Co., Oppo Electronics Corp., Vivo Electronics Corp. and Xiaomi Corp., who together with Apple Inc. AAPL 1.74 % have pushed Samsung out of the top five smartphone vendors by units shipped.

For several hours after Chinese regulators announced the recall, Samsung’s Chinese website wasn’t updated to mention the new development, though the company’s previous statements, which had cast suspicion on Chinese phone explosion reports, appear to have been removed.

The company issued a statement late in the afternoon calling for all users of the device to turn in their devices. It also offered “sincere apologies” to users for any trouble that the recall had caused.

By Jonathan Cheng and Eun-Young Jeong in Seoul and Eva Dou in Beijing

—Kwanwoo Jun in Seoul and Yang Jie in Beijing contributed to this article.

Write to Jonathan Cheng at jonathan.cheng@wsj.com and Eva Dou at eva.dou@wsj.com