Benefitting from Samsung’s Exploding Smartphones

October 12th, 2016

It’s clear that Samsung’s executives are having a bad time these days. First, they released the Galaxy Note 7 phablet only to receive reports of dozens of incidents of batteries overheating and sometimes bursting into flame. That’s bad enough, and, to its credit, Samsung quickly recalled the product and presumably worked on a fixed version.

But it only went from bad to worse from there. So Samsung released the new version last month, said to be free of the battery defect, and many customers dutifully exchanged their handsets. Unfortunately, the scandal didn’t end there. Within days arose reports that the fixed smartphones weren’t fixed after all. Some of them, too, burst into flame.

At first Samsung announced that production of the Galaxy Note 7 would be halted temporarily. U.S. carriers announced they’d no longer distribute this model. It didn’t take long for Samsung to get the message. Production has been stopped, and Samsung will “eat” the losses, which may amount to as much as $19 billion.

Even worse, according to a report in The New York Times, Samsung has yet to figure out exactly what went wrong. They were never able to duplicate the problem during their test process. I’m not sure what that means, other than the possibility that Samsung is going to have to revise its R&D methods to avoid future problems.

Now just imagine if this sort of thing happened to Apple. What if an iPhone had an unusual tendency to overheat and/or burst into flame? You can be sure that the U.S. Congress would be putting Tim Cook on the carpet, and it would fill headlines for days. The hard-won reputation for the iPhone would vanish overnight, and the stock price would tank.

How long would it take for Apple to recover from such a scandal?

Samsung? Well, the story has gotten more play in recent days, and that’s a good thing. Anyone who still has a Galaxy Note 7 should shut it down and return it post haste. Dealers will no doubt exchange it for something else, or give you your money back. Even though the unit you have may work properly now, it is still a ticking time bomb in the most literal sense.

Now in addition to the financial fallout, Samsung is going to have to work doubly hard to convince customers that its new mobile handsets do not share the same battery problems. I would expect that they are going to test the products as carefully as possible to make sure they survive the most stringent abuse.

But the recovery won’t be fast or easy. It may take years for Samsung to regain its reputation as a manufacturer of reliable mobile hardware. In the meantime, there’s an open opportunity for other manufacturers to make sales at Samsung’s expense. You’d expect lesser players in the Android market would attempt to benefit, such as HTC, LG and Lenovo’s Motorola division.

But what about Google and the newly-announced Pixel, Phone by Google lineup? Will customers suddenly flock to Google as an alternative? They might have, except that the new product is only going to be available from just one carrier, Verizon Wireless, or directly from Google. That promises limited distribution, even if Google spends a reasonable amount of money for advertising. Indeed, why invest in marketing if most people can’t buy one conveniently?

If Pixel, Phone by Google, takes off, I suppose there’s  long-term potential. But it may take a year or two for that potential to begin to be realized. Google can’t benefit from the current situation, because Samsung’s reputation is tarnished now, and the time to take advantage of that state of affairs is now. With new hardware, great reviews, and no more burnt hardware, Samsung may regain its reputation someday. Not now, but perhaps when the Galaxy S8 arrives next year? Maybe not even then.

So how does that impact Apple?

Well, Apple’s stock price has risen in recent days, no doubt partly in the belief that some people will just choose iPhone as a replacement for those defective Samsungs. Certainly people who might have considered jumping platforms might choose this as the perfect time to act on that plan. The iPhone 7 family is hot stuff, but it’s still backordered, particularly the iPhone 7 Plus. Indeed, when I checked Apple’s online storefront, and choose what I believe to be an iPhone 7 Plus in a less-popular color, I was still quoted 3-4 weeks delivery.

So if people want something now, the iPhone 7 might not be the ideal choice, unless you’re willing to wait a while, or luck into something you like at your local dealer. On the long haul, however, it may well be that Apple will still benefit, particularly from customers who don’t need an immediate replacement. Or perhaps they’ll consider an iPhone 6s, which is readily available.

In the meantime, I do not expect to see Apple say much, or anything, about Samsung’s predicament. Let the story play out, and if customers are coming, let them come. I suppose it’s possible something might be said at a future media event, or during Apple’s conference call with financial analysts later this month if someone asks. Even then, Apple’s executives might be generous about it, and simply state they hope that Samsung will solve its problems and get back to business.

While behind the scenes, the corks are probably popping at Apple headquarters.

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One Response to “Benefitting from Samsung’s Exploding Smartphones”

  1. DaveD says:

    I have a case of schadenfreude with Samsung and sympathy to the customers who suffered medically and financially when their Note 7 had a spontaneous combustion incident. Current owners need to exchange their Note 7 ASAP.

    To me this is an example of “bad Karma” on Samsung that copied the “look and feel” of Apple’s iPhone from day one. From the news, I read that Samsung took the opportunity of the many tech pundits’ words of a boring iPhone 7 release months away. Samsung skipped a model number going from Note 5 to Note 7.

    The U.S. Supreme Court is currently examining the judgement amount that Apple was awarded on the iPhone patents against Samsung. Even if the high court reduces the amount when compared to the total amount that Samsung will lose in canceling the Note 7 in addition to the reputation damage, the years of contesting the initial judgement through the court system would be a hollow victory.

    Some of us have seen Apple’s “flaming PowerBook” on the tech news endlessly a few decades ago. Even though the incident was contained in a lab and Apple switched back to nickel metal hydride battery before shipping. Samsung’s problems are worst. The lost of Apple’s processors production, washing machine issue, and capping off with a “flaming smartphone.”

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