A popular joke going around the telecoms industry of late is that Samsung has outmanoeuvred Apple in smartphone innovation — adding a powerful heater to its Galaxy Note 7 to warm the hands of users in cold winter months.

Yet the smartphone’s overheating safety issues have become no laughing matter for the South Korean company, after it pulled the plug on a model that only a few months earlier had some in the industry arguing it was the best handset they had ever seen.

The move to warn consumers to stop using the fire-prone model, then to kill the handset model for good, in a frantic 24-hour period, has not only hit Samsung’s share price and reputation, but also raised concerns its standing as the world’s largest phonemaker could be under threat. One network source told the Financial Times that sales of the Galaxy S7 have started to dip this week, in what could be an early sign the brand has taken a big hit in consumers’ eyes.

Samsung had initially won praise for its handling of the safety issues that plagued the Galaxy Note 7 after its launch in August. It moved to replace 2.5m of the phones in early September, amid reports that the handset was overheating and catching fire. Despite creeping concern about the phones, as airlines and consumer watchdogs continued to issue warnings about the Note 7, Samsung shares hit an all-time high last week as investors shook off the financial impact of the initial recall. The replacement programme and a switch in battery supplier appeared to have drawn a line under the affair.

Yet that confidence was shattered when a spate of further fires caused US networks to withdraw the replacement model, with Samsung following suit this week with a total withdrawal of the Note 7 from the market. Its second recall has raised question marks over whether it had sufficiently investigated the matter in the first place.

“It is easy to overlook the first recall, but much more difficult to overlook the second,” analysts at Credit Suisse said in a note on Monday.

Lowell McAdam, chief executive of Verizon, said that Samsung had suffered a “major black eye” as a result of the unprecedented second recall. “This is by far the biggest concern I have seen in cell phones during my tenure,” he said, at an industry conference in California.

The immediate financial damage of scrapping the Note 7 is significant, with 4m already having been produced. Analysts estimated that the costs could be $2.5bn. The move will also create a $17bn black hole in its sales outlook, based on Samsung’s expectations that it would sell around 19m units.

The Note remains only a small segment of the broad range of Samsung devices, given it produces 300m smartphones a year, but the reputational damage could be severe and cause consumers to reconsider their attachment to the brand. The latest industry data from Gartner shows Samsung’s market share rose to 22.3 per cent in the second quarter from 21.8 per cent in the same period a year earlier, as sales surpassed those of Apple and Huawei, the number two and three performers, combined.

Yet the freefall in market share of former powerhouses Nokia, Motorola and BlackBerry proves that sustained dominance in the smartphone sector is difficult to achieve.

Google’s Pixel phone, due to hit the shelves later this month, was already tuned to target Samsung, which has built its phone empire on the search company’s Android operating system. Analysts said Huawei and LG were also well positioned to benefit if Samsung started to seep share, but Google appears to have timed its run into its own hardware well. “This particular opportunity is Google’s to lose,” said Richard Windsor at Edison Investment Research.

The high-profile failure of the Note 7 has also dealt a blow to Samsung’s confidence, after its recent struggles to revive its core smartphone business. “They got their mojo back with the S7 so they’re really hurting now. It’s humiliating,” said one industry source.

The stakes are high, with Samsung historically deriving two-thirds of its profit from the smartphone market. “Samsung’s superb profitability in Android handsets is based on the fact that it out-ships its nearest competitor by more than 2 to 1, and a big loss of brand equity will give Huawei an opportunity to close the gap,” said Mr Windsor. “This will be highly detrimental for Samsung’s profitability in handsets leading us to be much more nervous with regard to the long-term outlook.”

The South Korean company could yet choose to retire the whole Note brand. Sources said it was still too early to determine whether the model would survive in a revamped form.

How it handles the fallout of the Note 7 saga could well define whether Samsung can retain its grasp on the premium end of the smartphone market or if its brand is tainted beyond repair.