Note 7's failure is good news for Apple, but better news for Android competitors: Analysis

Samsung's decision to cease production of its Galaxy Note 7 has the potential to seriously upset the domestic smartphone market. But according to a recent research note, smaller manufacturers of Android phones may see more of the gains than Apple, Samsung's biggest competitor.

“We think other Android vendors with 5.7" phones could see a bigger benefit if Android users prefer to stick with Android (just as iPhone users prefer to stick with the Apple ecosystem),” Wells Fargo Equity Research analysts wrote in a recent research note. “LG, Kyocera and Microsoft have 5.7" phones at US carriers (as well as the older Galaxy Note).”

Google also stands to capture some of the gains, as its new Pixel and Pixel XL handsets are both timed and priced to compete with the iPhone 7. At 5.5”, the Pixel XL doesn't quite match the giant footprint of the Note 7, but Android devotees looking for a new home may be willing to trade off for the processing power, camera quality and VR compatibility that Google's phone offers.

While the Note 7's absence will obviously hurt Samsung's showing in this smartphone generation, the broader question is whether its unfortunate double recall will hurt the manufacturer's standing in the long term.

“Samsung will have to face an uphill reputational climb though it is unclear whether this will be short-lived or long-term. We see some moderate risk that Samsung will have to be more promotional around its existing and newer phone models, which could have some impact on Apple as well,” the analysts wrote. They did not change their market perform rating based on the development.

Still, the news brings Samsung into dangerous territory. In recent years, Samsung and Apple have dominated the U.S. smartphone market, marking Samsung as Apple's only real competitor.

“There are only three manufacturers making money in the premium smartphone space: Apple, Samsung and Huawei. And in the U.S., it's just Apple and Samsung. Everybody else is getting squeezed,” said Avi Greengart, research director of consumer devices for Current Analysis, in a previous interview with FierceWireless.

But after Samsung's flop, it's now much more realistic that another manufacturer of Android phones could steal Samsung's crown.

Of course, none of this is to say that Apple won't benefit from Samsung's misfortunes. The company's stocks have risen as the news came out, and the Wells Fargo analysts estimated the company could expect an additional 3 million incremental iPhone 7 sales.

Image: Google Finance