The phone, named the Galaxy Fold and priced at $1,980, has only been given to gadget reviewers so far, but several people have reported that their screens appear to be disconnecting and permanently flashing on or off.
Samsung started taking pre-orders for the Galaxy Fold last weekend, but quickly ran out of availability, suggesting supply is constrained at least until its retail launch.
Samsung's stock decline was related to the early reports of the Galaxy Fold breaking, said Daniel Yoo, head of global strategy and research at Kiwoom Securities. On top of that, investors were also responding to concerns about Samsung's part in the roll out of the next generation 5G wireless standard, he added.
Apple and Qualcomm settled a longstanding legal dispute over royalties earlier this week, with the settlement including a payment from Apple to Qualcomm as well as a chipset supply agreement, suggesting that the Cupertino-based tech giant will buy Qualcomm's chips for future iPhones.
Analysts had previously said that the dispute between Qualcomm and Apple could slow down Apple's plans to support next-generation 5G networks, with the former being one of the top suppliers of chips that can connect to 5G networks. The agreement opens up the possibility that Apple could release a 5G iPhone sooner than expected with Qualcomm's modem technology.
At present, however, Samsung's Galaxy S10 and Fold devices are "leading" the way among phones with 5G potential, according to Yoo.
"If there is any chance of demand slowdown due to quality control, this will have quite significant negative impact on the IT sector as a whole," Yoo said, noting that demand for chips in the first half of 2019 was already weak.
For its part, Samsung said in a statement that it was looking into the reports of broken Galaxy Folds:
A limited number of early Galaxy Fold samples were provided to media for review. We have received a few reports regarding the main display on the samples provided. We will thoroughly inspect these units in person to determine the cause of the matter.
Separately, a few reviewers reported having removed the top layer of the display causing damage to the screen. The main display on the Galaxy Fold features a top protective layer, which is part of the display structure designed to protect the screen from unintended scratches. Removing the protective layer or adding adhesives to the main display may cause damage. We will ensure this information is clearly delivered to our customers.
Commenting on the reports about the Galaxy Fold breaking, Yoo said they appeared "over-stretched."
The current concerns and correction will be "limited in the short term," with the issues faced by the device likely to be solved before its launch, he said.
— CNBC's Todd Haselton, David Faber and Kif Leswing contributed to this report.