Not to make light of what has been a somewhat dangerous situation for some consumers, nor to celebrate a corporate-level disaster, but Apple Inc. (NASDAQ:AAPL) might be the luckiest company of the year so far. You can see it in the glow in Apple stock after the Galaxy Note 7 smartphone from Samsung Electronics (OTCMKTS:SSNLF) yet again demonstrated a major design flaw.
How lucky is Apple, and by extension, how lucky are owners of Apple stock?
They’re as lucky as the owners of the Galaxy Note 7 devices that recently caught fire are unlucky.
There’s no official tally yet. Not all incidents stemming from a design problem are publicly reported. It is safe to say, however, that there were more incidents than the dozen or so that have been confirmed, and that was more than enough to prompt Samsung to halt sales of the Galaxy Note 7 until it can figure out exactly what’s causing the batteries in the device to overheat, and what to do next.
Not Just a Battery Problem
If this all seems vaguely familiar, it may be because the problem actually surfaced in late August. By early September, all Galaxy Note 7 smartphones were being recalled by Samsung a mere month after it had been released, as some of the phones had caught fire while charging.
At the time, it was believed to be the batteries used rather than the device itself, and although a simple swap-out of the battery would have sufficed, the company offered an outright exchange for a different device if a customer wished it. As it turns out, the problem doesn’t appear to be faulty batteries; it’s the device itself.
This past weekend, several of the Galaxy Note 7 phones with a replaced battery overheated and caught fire just as the previous ones had.
With the design of the device clearly flawed, Samsung has opted to discontinue sales of the device, and to stop making the Galaxy Note 7 altogether.
Apple, Alphabet Win at Samsung’s Expense
The overheating issue has been limited to the Galaxy Note 7, considering it was a design/quality problem and not just a battery issue. But it’s not a stretch to say Samsung’s reputation has been damaged. That will adversely impact sales of other Samsung phones, funneling consumers to alternative phonemakers like the new Google Pixel, from Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL)
The real winner here, however, are those who’ve patiently held onto their stake in Apple stock even though sales of the company’s flagship smartphone. Apple’s iPhone 7 is the only device that effectively contends with the Galaxy Note 7, and Samsung’s device was just disqualified from competing.
This couldn’t have come at a better time for Apple, either. Although the hoopla surrounding the iPhone 7 was as loud as it usually is for the release of other iterations of the iPhone, credible reports of weak iPhone 7 sales have spooked Apple stock holders. Now Apple’s phone won’t have to compete with its biggest threat.
The upside to Apple isn’t exactly clear, but Standard & Poor’s analyst Angelo Zino thinks the Samsung debacle could translate into an additional 14 million to 15 million iPhones sold this quarter. The pros had been expecting sales of 60 million units of the device.
It’s not just a hollow assumption or hopeful logic. A recent poll performed by CNET found that 48.5% of the site’s readers would opt for the iPhone if they had to replace their current Galaxy Note 7.
Bottom Line for Apple Stock
I’ve made a point in the past about the dangers of putting Apple stock on a pedestal. But I’ve never denied Apple makes the highest-quality products found in the consumer-tech market.
Up until now it didn’t matter. Samsung’s and Google’s hardware quality was “good enough” to compare it to the functionality of Apple’s devices. The Galaxy Note 7’s problems weren’t rooted in a logic-oriented design decision though. It was a design flaw, and a dangerous one at that. All of a sudden, Apple’s obsession with over-engineering things is paying off in spades.
That is not a reason in and of itself to buy AAPL, but it certainly doesn’t hurt the bigger bullish case — even if it was mere luck that put Apple back in the positive spotlight.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.