Korean electronics company Samsung is having a pretty rough week. Just two weeks after the release of the much-awaited Galaxy Note 7 phablet, the smartphone maker announced a worldwide recall due to serious battery defects.
According to news outlets, there were more than 30 recorded cases of Galaxy Note batteries exploding, some while in transit. The recall of the hot-selling device came at the worst possible time: Apple Inc‘s (NASDAQ:AAPL) flagship smartphone is set to launch on the 7th in San Francisco.
According to Carolina Milanesi, an analyst at Creative Strategies, “[t]he timing could not be worse given how positive the reviews of the Note 7 have been, and this is the device Samsung was counting on for the holiday season.”
If Apple plays its cards right, the iPhone 7 could reach the top of the sales chart, leaving Samsung the difficult task of sending replacement units worldwide and convincing customers to accept the replacement rather than making the switch to the new iPhone in the same week.
And while iPhone’s unit sales have plummeted this year, a significant number of current iPhone owners could be looking to upgrade their devices. Samsung took two years to upgrade the Note, an effort meant to develop a larger group of possible buyers looking to upgrade. Apple is expected to woo these prospects away from the Korean smartphone maker, according to Neil Shah, research director at Counterpoint Technology.
“This squashes Samsung’s only critical window of opportunity before the new iPhone proliferates to tap the two-year-old Note and iPhone base,” Shah says.
Last week, Samsung issued a statement regarding the defective Note batteries, saying that it has “found a battery cell issue.” The company announced that it will conduct an investigation on the matter and will halt sales while offering a replacement for devices already sold.
Wall Street analysts who follow the issue predict that the recall will damage Samsung as a brand while lifting Apple’s image.
“This issue could bode well for Apple and specifically the iPhone 7 Plus with dual camera that is expected to be unveiled next week,” Brian White, an analyst at Drexel Hamilton, said. “Furthermore, we believe the images and videos of burning Galaxy Note 7 devices in the media will cause some damage to the Samsung brand, further bolstering Apple’s brand.”
That said, analysts gave props to Samsung for moving quickly to acknowledge the problem and rectify the issue before it worsens. Before the recall, Samsung shipped 2.5 million Note 7.
“It’s great that they’re acting quickly and decisively here, rather than being defensive or stalling,” said Jan Dawson, chief analyst at Jackdaw Research. “The fact that they’ve been able to replicate the issue in their testing means it’s real and absolutely needs to be dealt with, so kudos to Samsung for just getting on with things.”
However, Dawson criticized the South Korean electronics conglomerate for allowing the problem to slip past the pre-release stage.
“To top it all off, the timing of the Note 7 launch was supposed to steal some thunder from the new iPhones, but now the Note 7 won’t even be on sale the week those iPhones are announced,” he added.
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