Apple Inc. (NASDAQ:AAPL) Good News Keeps Coming

2016-10-09

Author: Ophir Gottlieb

Preface
As the new iPhone 7 release goes on, the good news keeps coming for Apple Inc. (NASDAQ:AAPL).

STORY
Much as we urged the public to recognize back in March of this year, the iPhone 7 and 7 Plus are turning out to be huge successes. What no one could have known was the added tailwind that has blown firmly in Apple's direction from one of the largest corporate scandals yet to be recognized as such, from Samsung. We have two narratives to discuss.

First, we learned that German supplier Dialog Semiconductor said its quarterly revenue were higher than expected. "Apple accounted for about 80 percent of Dialog's revenue last year, making the chipmaker's results a potential indicator of iPhone sales" (Reuters).

This is yet more evidence that Apple's new iPhones are not only selling well, they are selling better than anyone predicted. We reported most recently on the other evidence in the dossier New iPhone Sells Out of Stores Before Doors Open.

Apple Inc.'s two largest markets by installed base are China and US and both have huge numbers of devices that are about 2 years old -- which, even in this day and age of stretched phone usage, is considered old and in the primary replacement zone.

Second, and quite disturbingly, the Samsung Galaxy Note, which was plagued by fires when charging, is getting worse. The company recalled its devices after reports of fires spread and the phone was banned from use during US commercial flights. But it just turned into a corporate scandal. Here's how the story has now unfolded, from the Verge (emphasis added).

"A third replacement Samsung Galaxy Note 7 caught fire earlier this week. It wasn't plugged in. It wasn't anything, it was just sitting there. []

Samsung was aware that its replacement phones were catching fire five days ago. Another caught fire on Thursday (on an airplane), and then another on Friday in the hands of a thirteen-year old girl. That's three in less than a week, with Samsung giving its customers little more than meaningless platitudes about "[taking] every report seriously" and that "customer safety remains our highest priority as we are investigating the matter."

At this point, it's irresponsible for us to say anything else: If you own a Samsung Galaxy Note 7 you should immediately stop using it and return it for a refund - all the major US carriers will exchange the phone, regardless of purchase date.

Until we get more information, the simplest explanation is the best one: The Samsung Galaxy Note 7 is a fundamentally defective product and it should be pulled from the market without delay."

AT&T is now considering stopping all Samsung Note sales. "The wireless carrier is the third-biggest customer of the South Korean company, according to estimates compiled by Bloomberg" (Bloomberg).

Primary technology researcher Ben Bajarin reported that the Samsung Note saw less than half of what analysts expected in terms of sale during the prior quarter, and that was before this mess turned into a full blown scandal.

The apparent result is that the iPhone 7 Plus (the larger iPhone) is getting some of that lost business. That means Apple is not only getting more sales to its highest margin product, but it's also getting new consumers into the iOS ecosystem.

Samsung will survive, but Apple Inc. (NASDAQ:AAPL) has a walked into a perfect storm.

The author is long shares of Apple Inc. (NASDAQ:AAPL).

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