Apple Inc. May Not Benefit from Samsung Electronics Limited Weakness; Here’s Why

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Analyst thinks Samsung’s missteps are not likely to have a materially positive impact on iPhone units

Nomura Securities reviewed Apple Inc. (NASDAQ:AAPL) stock with a positive note as the firm noted that the Samsung Electronics’ (OTCMKTS:SSNLF) failures are unlikely to have a materially positive impact on Apple’s iPhone units. The firm reiterated a Buy rating on Apple stock and affirmed a $135 price target, reflecting 14.84% upside potential over the closing price of $117.55.

Noting the battery challenges faced by Galaxy Note 7, Jeffrey Kvaal of Nomura Securities commented that even with the worst case scenario of 28 million total Note phones, the opportunity does not translate to a material benefit for Apple. Mr. Kvaal’s channel checks indicated that to date, around 90% of users who returned Galaxy Note 7 have opted to stay within the Samsung family. This reflects that the unit sales bump may be negligible.

On the contrary, many analysts believe Apple to be the primary beneficiary of Samsung’s Note 7 recall. Street analysts hope to see around 5 to 7 million iPhone 7 orders to generate from ex-Note 7 users. Drexel Hamilton analyst, Brian White, estimated that the Apple may ship 8 million extra unit sales in 2016, out of the 10–14 million Note 7 phones that were expected to be sold this year.

Samsung is pushing its consumers to return back Note 7 phones as it is well known that it could pose a safety risk. Since its original recall to September 27, the smartphone manufacturer was able to get back more than 60% of its phones back. Remaining 40% users have opted to keep the phone despite reports of overheating, catching fire, and explosion.

“People really need to take it seriously. We don’t believe in recall fatigue. There are certainly a lot of recalls announced, but each and every one is important to respond. You don’t know when or where the phone could overheat,” said CPSC deputy director, Patty Davis.

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