The launch of the Note 7 was also seen as an attempt by Samsung to steal a march on Apple. Apple is expected this week to unveil its latest smartphone, possibly named the iPhone 7. However, the phone is expected to be evolutionary rather than revolutionary, and the usual fanfare that greets Apple's new product launches has been muted. Speculation is that it will have an upgraded camera, wireless headphones, more battery power, and a pressure-sensitive home button.
However, Samsung’s problems mean Apple could actually now steal a march on the South Korean company instead. Samsung has predicted it will take just two weeks to manufacture new phones for existing customers, but it will also mean a dearth of phones on the market for potential new customers to buy just as Apple’s new device arrives. That’s very bad news for Samsung as it tries to convert Apple customers, especially as the stunning growth of the global smartphone market in recent years is slowing fast and there are strong indications that smartphone users are buying fewer upgrades and hanging onto devices for longer.
As long as Samsung can solve the problem as quickly as it says it can, the issue may not be devastating or long-lasting, but it’s definitely an unexpected gift for Apple.
While Samsung’s shares have risen 27% so far in 2016, Apple’s shares are up just 2.35%. The US company remains heavily reliant on the iPhone for its revenues and profits, and the new releases just aren’t generating the same level of excitement that they used to. But perhaps that is unsurprising. Apple is now a mature company operating in mature markets. How can it be expected to continually revolutionise the device market? On the plus side, Apple’s customers are sticky – they tend to stick with the company’s devices because services like music are so entwined with the devices.
Could Apple’s product launch give its shares a new boost?
And that’s why Apple is still valued at more than Samsung. Apple’s market capitalisation is $580.5 billion to Samsung’s $205.8 billion, its shares trade on a blended price-to-earnings ratio of 12.1 times compared with 9.8 times for Samsung, while its enterprise value-to-earnings before interest, tax, depreciation and amortisation is 6.0 times compared with 2.9 times for Samsung.
For investors, this made Samsung the more attractive proposition before its battery recall. Now, Samsung shares are looking decidedly more risky. Samsung has moved very quickly and decisively to resolve the issues with its Galaxy Note 7, and that should go down well with its customers. As well as potentially losing custom to Apple, Samsung faces tough competition from other manufacturers making phones with the Android operating system. A quick resolution will also be necessary to assuage investors. It's facing a hit in the current quarter, but must make sure it's a one-off that doesn’t drag on.