'Worst-Case Scenario' Just Became Reality for Samsung Galaxy Note7

Analysts described terminating sales of the Note7 as a "worst case scenario."

ByPaul Blake
October 11, 2016, 2:03 PM

— -- Samsung is living a business nightmare.

Since Sept. 2, the company has been hobbled by an informal product exchange, a government-sanctioned recall and the issuance of replacement devices for the original Galaxy Note7 phones, which were found to have a defect that could start fires. Then, shortly after hitting the market, there were reports that the replacement phones also were overheating.

Today, the company announced what industry analysts have called a “worst-case scenario” -- ending production and sales of the phone altogether.

"We have controlled the amount of production in order to carry on detailed investigation and strengthened quality control. But in consideration of customer safety, we have finally decided to stop production as well as sales of Galaxy Note7s," Samsung said in a statement in Korean to shareholders.

While that move will take these potentially dangerous phones off the market and end the threat to consumers, the damage to Samsung’s brand and bottom line will likely be felt for some time yet.

In a research note for investors shared with ABC News, analysts CW Chung and Chris Chang at Nomura, a Japanese financial services company, described the situation as a "worst-case scenario" for Samsung and projected that terminating sales and disposing of existing devices could cost the company as much as $5.1 billion in expenses and lost sales.

But the damage doesn’t just affect the balance sheet.

“We think the GN7 incident may hurt demand for SEC’s other smartphone models as well,” the analysts wrote, using acronyms for the Galaxy Note7 phone and Samsung Electronics Co.

And they’re not alone in their beliefs.

Bob O’Donnell, chief analyst at Technalysis Research, told ABC News that with today's announcement, Samsung suddenly goes from "being the world’s largest smartphone vendor and a highly trusted brand to someone who created products that created highly-publicized fires and other public concerns.”

Not only will it likely hurt Samsung, but industry analysts predict it could boost sales for its chief competitor: Apple.

“I originally thought this was going to be a bigger benefit to Android players -- LG, perhaps even Google. As the extent of the challenge goes on, it appears that Apple likely will benefit as well from this,” O’Donnell said. “It certainly helps with the brand recognition of Apple versus Samsung.”

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