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Galaxy Note 7 problem could hit Samsung's share of the Christmas market

Samsung has a very narrow window of opportunity to fix the Galaxy Note 7, or its dominance of the smartphone market could come under pressure, investment pros have warned.

Michael Robinson, chief technology strategist at Moneymorning.com, told CNBC that if the issues with Samsung's flagship smartphone were not resolved soon, the company could miss the crucial holiday season. Doing so could hit Samsung's sales and give competitors a leg up.

"If they skip the Christmas selling season, it's going to be even worse," Robinson told "Squawk Box" on Tuesday. "On the other hand, they can't really rush [into introducing new Note 7 handsets into the market]," he said.

Nomura analysts C.W. Chung and Chris Chang said in a Tuesday note that the worst case scenario for the Note 7 would be the "termination of Note 7 sales and disposal of existing inventory of three million-plus units sold in third quarter of 2016."

But Robinson dismissed the notion that Samsung could ditch the Note 7 model altogether, because this would aggravate the quality control issues and worsen the public relations disaster. On Tuesday morning, Samsung confirmed that Note 7 production and sales were permanently being halted.

"They need to have some kind of good quality product out in the market," he said.

The South Korean electronics giant announced early Tuesday morning that it would ask all of its global partners to stop sales and exchanges of the Note 7 as it investigates overheating issues in the devices. It also warned all users to power down their devices.

This followed the company's recall of the original Note 7 model due to problems with a flammable battery, and multiple reports that the supposedly safe replacement handsets given to users were also overheating.

Major U.S. and Australian mobile carriers have suspended or halted sales of Note 7s, and on Monday Reuters reported that the Korean Agency for Technology and Standards had confirmed that there were possible defects in the replacement smartphones.

SeongJoon Cho | Bloomberg | Getty Images

"Samsung totally botched this. To have this get out the first time is obviously a quality control problem ... and then to have the recall botched, to me is completely inexcusable," Robinson said.

Samsung had consolidated its position in recent months as the world's largest smartphone maker by shipment volume, aided by the success of its Galaxy S7 and S7 Edge smartphones, while the Note 7, introduced in August, was expected to continue that positive trend.

The giant recall came as competitors heaped extra pressure on the South Korean giant, with the launch of Apple's iPhone 7 and Google's Pixel into the already fiercely competitive high-end smartphone market.

Bradley Gastwirth, CEO at ABR Investment Strategy, told CNBC's "Street Signs" that Samsung's failure to arrest the problem with its replacement Note 7s would probably affect sentiment towards its other models, with users likely be more skeptical over the reliability of new Samsung handsets.

"This has gotten a lot worse than I think anybody would have ever imagined within the company," he said.

Samsung has not revealed the exact nature of the problem that caused its devices to overheat. In an emailed response to CNBC's query, Samsung said it was "temporarily adjusting the Galaxy Note 7 schedule in order to take further steps to ensure quality and safety matters."

Analysts have, however, pointed out that while Samsung's mobile business would likely feel the brunt of the Note 7 recall in the short term, it would not significantly affect the company's overall business due to strong growth in its components business.

The components business includes semiconductor and display technology.

In a Friday regulatory filing, Samsung said its July-September profit was likely to be 7.8 trillion won ($7 billion), a touch higher than the 7.4 trillion won tipped by a Thomson Reuters StarMine SmartEstimate average of analysts' forecasts.

The Nomura analysts said that while Samsung would face further earnings impact and damage to its brand image if it did drop the Note 7 altogether, the company's overall fiscal 2017 outlook was solid.

"Even if we factor in the worst-case scenario for Note 7, we think Samsung's overall 2017 operating profit is still likely to grow 30 percent year-on-year to 37.6 trillion won and surpass the all-time high of 36.8 trillion won in 2013," Chung and Chang said in their note.

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