SEOUL • The recovery in Samsung Electronics' mobile business suffered a blow yesterday as reports of exploding batteries forced the firm to delay shipments of Galaxy Note7 smartphones, and knocked US$7 billion (S$9.5 billion) off its market value.

Investors drove the stock to two-week lows after the global smartphone leader told Reuters late on Wednesday that shipments had been delayed for quality control testing, and shipments to South Korea's top three mobile carriers had been halted.

Faults with the new premium flagship device could deal a major blow to the South Korean giant, which was counting on the Galaxy Note7 to maintain its strong mobile earnings momentum against Apple's new iPhones expected to be unveiled next week.

"This is some major buzz-kill for Samsung, especially given all of the hard-earned excitement that products like the Note7 have been garnering lately," IDC analyst Bryan Ma said. "The pending Apple launch puts all the more pressure for them to contain this quickly. The timing of this couldn't have been worse."

Samsung did not comment on what problem it was trying to address or whether other markets were affected besides South Korea.

Sister company Samsung SDI said that while it was a supplier of Galaxy Note7 batteries, it had received no information to suggest the batteries were faulty.

Several people posted images and videos of charred Galaxy Note7s online and said their phones had caught fire.

"Be careful out there, everyone, rocking the new Note7 might catch fire, y'all," one said in a YouTube clip showing a burnt Note phone. It was not immediately possible to confirm the veracity of the clip.

Samsung's shares, which hit a record high of 1.694 million won last week, fell 2 per cent, and Samsung SDI tumbled 6.1 per cent, versus a 0.1 per cent fall for the broader market yesterday.

Several South Korean media reports, without citing direct sources, said Samsung will announce a plan to recall affected Note7 phones and replace their batteries, as opposed to giving the users a new device. A Samsung spokesman declined to comment on the reports.

Last year, production problems with the curved display for the Galaxy S6 edge model resulted in disappointing sales, and Samsung risks a repeat this year if it cannot address the Galaxy Note7 problems quickly.

Its mobile profit is on track to post annual growth for the first time in three years, thanks to robust sales of the Galaxy S7 and S7 edge devices that it launched in March to critical acclaim.

The Galaxy Note7 received similar praise, raising expectations for strong sales in the second half.

Samsung said last month that demand for the new handset, priced at 988,900 won (S$1,202) in South Korea, far exceeded supply, pushing the firm to delay the launch in some markets.

HDC Asset Management fund manager Park Jung Hoon said it now appeared inevitable that Samsung's smartphone average selling price and profits would miss lofty second-half expectations.

"Apple is supposed to show off the iPhone 7 next week and this issue has emerged, so the current state of things does not look good," he said.