Samsung's mounting crisis is opportunity for Apple's iPhone7 and Google's Pixel

A South Korean woman walks next to an advertisement of the Samsung Galaxy Note7 at the Samsung Electronics headquarters in Seoul. PHOTO: EPA

NEW YORK (BLOOMBERG) - Samsung Electronics' mounting crisis with its flagship Galaxy Note7 has left millions of premium smartphone buyers looking for an alternative. The obvious candidate is Apple's iPhone 7, but Google's slick new Pixel device could get a lift, too.

Samsung recalled and pledged to replace millions of Note7 phones in early September after reports that their batteries were bursting into flame. But over the past week, new reports have emerged that some replacement phones are catching on fire, too. Samsung has now asked retailers to stop selling all Note7 phones while the company and US officials investigate why the new batch of devices seem to be afflicted with the same problem.

Many people upgrade their phones during the Christmas shopping season, giving Apple and Google an opportunity to fill the Samsung vacuum - and making it even harder for the South Korean company to bounce back. The Pixel may be especially appealing to Samsung users looking for another device that runs the Android operating system.

"There's been a shift toward bigger screen devices, and there's less competition there given the Note7 issue, so there's definitely more opportunities for the iPhone 7 Plus," said James Cordwell, an analyst at Atlantic Equities LLP. As for Google, "the Pixel suddenly has got very limited competition at the high end of the market."

Samsung on Tuesday (Oct 11) asked wireless carriers to stop selling its most expensive phone and instructed consumers to stop using them. The move came as carriers including AT&T, T-Mobile US Inc, Sprint, Verizon Communications and Australia's Telstra halted Note7 sales following reports of problems with devices thought to be safe.

Before the exploding batteries, Samsung had defied a slowing smartphone market with better-than expected Galaxy sales and successfully capitalized on a lull in demand for new iPhones. In recent months, Samsung had expanded its already considerable market share. The company shipped 77 million smartphones in the second quarter for a market share of 22 per cent, that's up from 73 million, or 21 per cent share a year ago, according to IDC. Apple's shipments dropped 15 per cent to leave it with market share of 12 per cent.

Now the South Korean company enters the crucial holiday shopping season with no large-screen smartphone. Because Samsung and Apple have basically split the market for US$700-plus smartphones between them, the latter is a natural beneficiary of Samsung's woes.

Investors seem to expect that to happen and pushed Apple shares up 1.7 per cent to US$116.05 Monday in New York, the highest level since December 2015. In the long-term, Apple could attract Android users to its "sticky iOS ecosystem, which boasts a "95 per cent loyalty rate," Credit Suisse Group AG analyst Kulbinder Garcha wrote in a note.

Still, Google's Pixel, which debuts in the US, UK, Australia, Canada and Germany on Oct 20, could appeal to those who are immune to Apple's charms. The Pixel is the first phone the search giant has conceptualized, designed, engineered and tested in-house. It has a number of features that will be broadly appealing, including a Siri-like virtual assistant, a flashy camera and speedy apps. Of course, the Pixel is untested, Google's previous forays into hardware have floundered, and the company lacks its own retail stores.

How much Apple and Google benefit depends on what Samsung does next. Already pressure is mounting for the company to kill its troubled phone altogether.

Said Greg Roh, an analyst at HMC Investment Securities Co in Seoul: "It's meaningless to continue producing the Note7."

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