Samsung turns to China after battery stumble

Samsung Electronics switched exclusively to China's ATL after Samsung SDI batteries started exploding in the Galaxy Note 7.

When the Samsung Galaxy Note 7 was announced, it was called the best smartphone on the market. Unfortunately, the praise was short-lived. Reports of fires started appearing online and eventually media reports and comments from Samsung revealed widespread battery problems that have now led to a recall. Note 7 phones were affected everywhere except, for the most part, China. China Note 7 phones were mostly using batteries from local manufacturer Amperex Technology Ltd or ATL, which is owned by Japan's TDK.

Samsung was eventually told by the China government to recall all its devices in the country, not just the 1,858 Note 7s in China using Samsung SDI batteries. Nevertheless, ATL has still become the sole battery maker for the S7. Previously, Samsung SDI has made 70 percent of the Note 7 batteries.

Samsung Electronics likely wanted to outsource as little as possible to third parties. The company has a 20 percent stake in Samsung SDI, and both are subsidiaries of the Samsung Group. Unfortunately, a race to beat Apple's iPhone 7 announcement may have contributed to quality control issues as production teams were pushed to meet deadlines that were moved up and changing specifications.

Samsung SDI produces batteries in Tianjin, China, among other places, but the Hong Kong-based ATL primarily operates in Guangdong province, the manufacturing hub of China. ATL is a China success story, with the company being acquired by TDK six years after its founding in 2005. While it may be true that TDK having its reputation on the line might ensure high-quality products, that did not seem to help Samsung SDI in this case, which is associated with Samsung Electronics by its very name.

ATL represents how much China manufacturing has matured. China has long been a critical part of many supply chains because of sheer scale. Now, it is finally being associated with quality products. Li-ion batteries can bevolatile and easy to get wrong, which China has certainly struggled with, as evidenced by the "hoverboard' fiasco from the 2015 holiday season. Even hoverboard manufacturers in Guangdong have recently banded together to enforce new battery standards, though. Mistakes can still happen, of course, but in this latest event, Samsung comes out as the company that looks like it dropped the ball, giving a China manufacturer a chance to shine.