Apple hopes to benefit from Samsung smartphone woes

SAN FRANCISCO — Samsung Note 7's losses may be Apple iPhone 7's gain.

That's promising news for the Cupertino company as it gets set to announce quarterly earnings Tuesday. Apple has repeatedly been hit with year-over-year declines in smartphone sales, due to a mix of market saturation and the quality of its iPhone 6s.

But analysts are expecting that the travails of Samsung's overheating phablet-sized smartphone, dropped unceremoniously after two recalls that could cost the company more than $5 billion, could inadvertently end a fallow stretch for iPhone.

That would represent a major turnaround for Apple's franchise product, whose sales have declined the past two quarters and are expected to drop again when the company announces its fourth-quarter results on Tuesday. Analysts expect 44 million iPhone shipments in the fourth quarter, 4 million fewer than a year ago.

More important, corrosive iPhone sales could end a streak of 14 straight years of revenue growth at Apple. The company — which has reported two consecutive quarters of revenue declines — is projected to rack up $215.7 billion in annual sales when it reports Tuesday, down 8% from $233.7 billion in fiscal year 2015, according to analysts' estimates.

"Samsung's issues are a positive for Apple," says Angelo Zino, an equity analyst at CFRA Research (formerly S&P Global Market Intelligence). He's confident Apple can cleave an additional 1% of smartphone market worldwide — the equivalent of 14 million to 15 million iPhone sales — because of Samsung's woes.

Zino predicts iPhone will account for 62% of the company's revenue in the September quarter. Although unit shipments amounted to a 6% drop year-over-year — 45 million versus 48 million — it's up 11% from the previous quarter.

"Put it this way, there’s very limited competition for Apple at the top end of the market," says BGC Partners analyst Colin Gillis. "Samsung literally exploded."

Samsung's troubles have benefited Apple shares significantly: Shares for the Cupertino, Calif., company rose nearly 1% Monday to $117.65, near a 52-week high.

Apple has not released sales figures for iPhone 7, though Piper Jaffray’s Gene Munster and other analysts maintain the smartphone’s inventory remains “constrained.”

Gillis says Apple will benefit in its September quarter this year because it had an extra week. Apple is also expected to unveil new Macs on Thursday.

With worldwide smartphone sales flat at 343.3 million in the second quarter, according to IDC, Gillis contends Apple is "now competing with Apple."

When Note 7 debuted in August to strong sales (2.5 million) and sparkling reviews, it seemed iPhone was in for a fight. The 5.7-inch Note 7, announced several weeks before iPhone 7 and iPhone 7 Plus, seemed poised to take a bite out of what some called a middling Apple offering.

But the Note 7's success was short-lived: Reports soon surfaced of the device overheating and, in several cases, catching fire when charged. A recall soon ensued. And now it seems Apple could make hay.

Brand experts such as Matthew Quint, of Columbia Business School, say the stain of the Note 7 could impact the South Korean electronics giant for several product cycles and slightly undercut its leadership globally as a smartphone maker.

"Samsung is fortunate in that this didn't happen to its much more popular S (smartphone) series," Quint says. "It can recover, but it won't be easy."

And if Samsung recovers, it faces the daunting challenge of Apple's 10-year anniversary version of iPhone, which many analysts predict could be a blockbuster product in the fall of 2017. "It could increase Apple's smartphone shipments 10% to 15%, year over year," Zino says. "And that's a conservative forecast."

USA TODAY


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