In 2014 and 2015, Samsung’s (OTC: SSNLF) smartphones struggled mightily against the iPhone 6 from Apple (NASDAQ: AAPL).
But 2016 had been a turnaround year for Samsung smartphones. The company’s phones with screens that flowed onto the edges of the device were a big hit with consumers.
Thanks to its Galaxy S7 – with its curved screen and better battery performance – Samsung in July said its second-quarter performance was its best in two years. Profit at the company’s mobile division was on track for growth for the first time in three years.
The good times looked set to continue too. Following the mid-August debut for its Note 7, Samsung had sold over one million Notes – one of the best-reviewed Samsung smartphones ever. Everyone seemed to love the curved, waterproof, iris-scanning Note 7.
But then some Samsung smartphones’ batteries began exploding while charging. Triumph had turned into tragedy and a black eye for Samsung. It was forced to recall all 2.5 million units of the Note 7.
Luckily for Samsung, it is a well-diversified technology conglomerate. Do not forget Samsung is also the world’s top maker of memory chips, for instance. Its other divisions will ensure that it is still has a profitable year.
A Boost for Apple iPhone 7
But the Samsung smartphones recall gave its rival Apple an unexpected gift. The “gift” is a real opportunity for its Apple iPhone 7 to gain traction, despite the brouhaha over the scrapping of the headphone jack.
And Apple does seem to be capitalizing, with its duel-lens camera winning plaudits.
Shares in the world’s most valuable company climbed by the most in seven weeks, for several days in a row, after both T-Mobile US (NASDAQ: TMUS) and Sprint (NYSE: S) reported record pre-order iPhone numbers.
Those numbers should be taken with a grain of salt, however. All four of the major carriers have ongoing promotions that offer the 32 GB Apple iPhone 7 for free or make it appear that it’s free.
Nevertheless, this may be just what the doctor ordered for Apple. The extra sales from Samsung’s misfortune should give a boost to Apple iPhone 7 sales until 2017.
Next year will be the iPhone’s 10th anniversary and that’s when big upgrades – including a Note 7-style curved screen – are expected.
The Next Big Thing at Apple
That will be exciting and may be finally enough to get Apple’s stock out of the trading range it has been stuck in for years. Apple’s stock first surpassed the $100 a share mark back in September 2012 with the launch of the iPhone 5. And it has basically gone nowhere since.
The company trades at a valuation of a mere six times EBITDA. It almost seems like investors are bored with it. Even Carl Icahn threw in the towel on it.
Investors are looking for the next big thing from Apple – watches, cars, TVs, anything – and have been disappointed by Tim Cook’s seemingly plodding ways. They want to see growth again.
But many investors may be missing what is right in front of them.
Apple today has a huge installed base. That is the perfect launching pad for Apple to sell services.
Just look at all the excitement over Nintendo (OTC: NTDOY) and it bringing Super Mario to the Apple app store and also its Pokemon Go game. People seem to forget Apple gets a cut of every download. Estimates are that Apple will make a tidy $3 billion from Pokemon Go alone.
Already, in the past 12 months, services accounted for $23 billion in revenues for Apple. Services now are the second biggest component of Apple’s revenues.
Tim Cook says that, by mid-2017, the services business will be “the size of a Fortune 100 company.” His estimate is that revenues will then be $28 billion.
I fully expect the services business revenues to continue to expand at an annual rate in excess of 20%. That next $50+ billion business for Apple that Wall Street is looking for is fast approaching and it is services.
That should begin to boost Apple shares as investors once again see growth in the next 18 months.