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Samsung's phone woes may not directly benefit Apple

Samsung's battery problem with its highly-regarded Galaxy Note 7 smartphone is undoubtedly one of the bigger foul-ups in the short history of the smartphone — and has lead to a recall of 2.5 million phones.

But even the magnitude of the error probably won't be enough to push users immediately into the arms of rival Apple, experts told CNBC.

Samsung Electronics, a leading maker of higher-end Android devices, on Friday stopped sales of its Galaxy Note 7 smartphone amid reports that batteries were exploding during or after charging. The decision came at a crucial time, as competitor Apple is expected to unveil a new smartphone — the iPhone 7, if Apple sticks to convention — at an event next week.

But even with the timing of Samsung's battery cell issues, Apple still has a lot to prove before it can win over Samsung buyers, said Daniel Newman, principal analyst at Futurum Research, which provides analysis and research on digital transformation and innovation. It may come down to software as both companies duke it out for each other's customers.


Samsung Note 7 phone
SeongJoon Cho | Bloomberg | Getty Images

"I don't think the market pays a ton of attention to the news," Newman said. "People that walk into a store to buy a new phone, and they ask, 'What's the $99 dollar smartphone this month? What comes free with my plan?' That's a huge chunk of the market."

Early reports, unconfirmed by Apple, indicate that the iPhone 7 will have few changes visible to the naked eye of the average shopper. A dual lens camera, slightly thinner chassis, new body color, more memory, improved waterproofing, and the lack of a headphone jack are among the highlights that have been reported.

The Note 7, meanwhile, had already seen better-than-expected demand amid positive reviews before the company began to announce delays. The Note 7's note-taking functions, and security features like iris-scanning, are particularly unique, said Ramon Llamas, research manager for IDC's mobile phones team. Plus, Samsung has another phone — the Galaxy S7 edge — that can draw in premium users.

Now, the market is waiting. If the pricey new iPhone fails to impress, that leaves the door wide open for another player to snatch customers who may care more about their operating system — surfing Facebook or playing Pokemon Go — than the specs of their speakers, Newman said.

"I think anytime nowadays that there's a manufacturing issue, it makes people take pause," Newman said. "The last thing that people want is to buy something and have an issue. But I think really, what catapulted Apple beyond Blackberry, way back when, was simplicity and reliability. Android was always clunkier, had more glitches and more difficult to use. But Samsung phones have given people the experience they want."

With hardware innovation plateauing and apps becoming more important than ever, it's a significant undertaking to get users to switch from the iPhone to Android ecosystem, said Llamas. Smartphone apps now account for more than half of all American's time spent online, according to a Thursday comScore report.

"All your applications, content, all that you had on your previous Note devices — they don't transfer easily to an iPhone, and only some may transfer to other Android smartphones," he said.

By acting swiftly, Samsung may have time to fix and replace its smartphones in time for the holiday season sales spike, Newman said. It could blow over the way Apple's Maps glitches or "bendgate" did.

Still, not everyone is so sure. Nomura research analysts CW Chung and Chris Chang wrote that Samsung could have had a better follow-up strategy which could prevent brand-loyal consumers from changing their minds, like a Gear S3 giveaway.

Samsung also faces a squeeze as Apple threatens its high end market, and Android makers like Lenovo, Motorola, LG and HTC undercut its price, said Forrester analyst Frank Gillett.

"Having the talk about, 'Oops, there's a battery problem,' is a step in the wrong direction," Gillett said. "The biggest concern is they have to pivot the conversation to software and services."

As both Apple and Samsung face their challenges, there could be an opportunity for a dark horse to enter the race, too, Newman said. While Apple and Samsung are still top smartphone vendors by volume, their shipments are growing much more slowly worldwide than upstarts like Oppo, Xiaomi, Vivo and Huawei, according to IDC.

Indeed, many vendors now offer physical features like big screens and adequate processors, including $100 phones offered in emerging markets by players like Oppo, Xiaomi, Vivo and Huawei that come loaded with locally-important apps, Llamas said.

But far fewer offer the Note's private file system, Llamas said, or Apple's curated app store, said Newman.

"It's about changing the conversation," Gillett. "Are they in a commodity race to the bottom competing with the leading Chinese makers on price? Or can they carve out a role to themselves with services?"