Users of Galaxy Note 7 smartphones should turn them off and not use them, Samsung Electronics Co. and the U.S. Consumer Product Safety Commission said Friday, citing reports of fires involving lithium-ion batteries in some of the devices.
The warning followed a voluntary global recall of the Note 7 that Samsung announced a week ago.
Samsung said Friday that users should exchange their Note 7s, which are the latest addition to the company's phone lineup, through a swap program for another device. The South Korean company also said it has "identified the affected inventory and stopped sales and shipments of those devices."
Samsung has been working with the commission following the voluntary recall on a "corrective action plan" to expedite a CPSC-approved recall of the product, Samsung Electronics America President Tim Baxter said in a statement on Friday.
The CPSC confirmed it is "working cooperatively" with Samsung to formally announce a n official recall as soon as possible. The agency said it "is working quickly to determine whether a replacement Galaxy Note 7 is an acceptable remedy for Samsung or their phone carriers to provide to consumers."
The Samsung recall marks a rare instance of a company pulling its products without acting in conjuction with the U.S. safety watchdog.
"It is illegal for a company to know that it has a dangerous product and not inform the CPSC," said Pamela Gilbert, a partner with Washington's Cuneo Gilbert & LaDuca LLP and a former executive director of the CPSC. "This is an unusual situation."
Typically, the commission announces recalls in cooperation with manufacturers, after consultation. But no agreement on a recall notice has been reached yet with Samsung.
The move follows a warning late Thursday from the Federal Aviation Administration saying the phones shouldn't be used on planes "in light of recent incidents and concerns."
Investors on Friday wiped more than $10 billion off Samsung's market value following the FAA's announcement, which prompted airlines to issue warnings to passengers about using the phones on board or putting them in checked luggage. In Seoul, Samsung shares closed at 1.575 million won ($1,432), down 3.9%, before the CPSC's announcement.
On Sept. 2, Samsung said it was voluntarily recalling the Note 7. The company said at the time that it had shipped 2.5 million units of the product since its Aug. 19 launch. Samsung has said it plans to expedite new shipments of Note 7s with safe batteries, and it is offering $25 gift cards to U.S. Note 7 owners who exchange their phones.
Koh Dong-jin, chief of Samsung Electronics' handset division, said on Sept. 2 that the Note 7 incidents were caused by the battery cell and had nothing to do with the phone itself. "There was a minor flaw in the battery manufacturing process," Mr. Koh said, adding that "the quality-c ontrol standards in the production process may have been insufficient."
Friday's statement from the CPSC was also unusual in that it warned owners not to use the product at all.
"This is an even more serious warning," said Scott Wolfson, the CPSC's communications director. "As soon as possible, consumers deserve clear information about the hazard, the scope of products involved and what the accepted remedy is."
About 100 cases of so-called hoverboards catching fire last year prompted the CPSC to launch an investigation that took several months. The agency put out a similar pre-recall announcement during its probe into the hoverboards, Mr. Wolfson said.
Samsung, like many other handset makers, uses lithium-ion batteries in its smartphones because of their light weight and long-lasting power. Nomura analyst Chris Chang estimated last week that 65% of the batteries for the new smartphone were supplied by affiliate Samsung SDI, SSDIY 0.00 % while 35% were made by Amperex Technology Ltd., a unit of Japanese electronic parts maker TDK Corp. TTDKY -0.64 % Samsung has indicated that Note 7 phones sold in China, which carry Amperex-supplied batteries, haven't experienced problems.
Samsung has used its popular Galaxy phones to boost its mobile business, which has been struggling amid competition from Apple Inc. AAPL -2.26 % and Chinese rivals. Strong sales of the smaller flagship Galaxy S7 phone helped make the June quarter the company's most profitable in nearly two years.
Samsung is the world's biggest smartphone maker by market share, followed by Apple, which unveiled its iPhone 7 on Wednesday, and Huawei Technologies Co.
Samsung isn't the first smartphone maker to run into power-related safety issues. Apple earlier this year recalled 12 years worth of AC adapters sold in Europe and other regions, citing a dozen cases in which they had delivered electric shocks.
—John McKinnon contributed to this article
Write to Josh Beckerman at josh.beckerman@wsj.com and Georgia Wells at Georgia.Wells@wsj.com
Source: Samsung and Watchdog Warn Against Using Galaxy Note 7 Smartphones
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