Samsung's PR disaster with its fire-plagued Galaxy Note 7 smartphone wasn't just an unfortunate design flaw. It was a case of very poor timing.
It's been more than a month since South Korea-based Samsung announced that it was permanently discontinuing production and sale of the Note 7 smartphone after scores of units overheated or caught fire because of defective batteries, and some of its replacement handsets given out during a massive recall had the same problem. The recall involved about 2.5 million phones.
The setback occurs just as a number of Chinese smartphone vendors are emerging as major players, and as the industry is adopting new OLED displays that promise bold new product designs.
As a result, analysts believe Samsung's fumble could help to reshape the mobile phone market in the year ahead — just one of several factors that could upset the status quo in the handset business.
"From a competitor standpoint, there's going to be some shuffling with the Chinese (vendors) and there's going to be some market share loss by Samsung," IDC analyst Ramon Llamas said. Plus, Apple (AAPL) is counting on a rebound with its most-anticipated smartphone in years.
IBD'S TAKE: Apple climbed 33% from a May low and formed a flat base, begun in mid-October. Apple's stock found support at its 200-day moving average and is trading below a 118.79 buy point.
Samsung is not pausing to nurse wounds. The company announced Nov. 14 that it would pay $8 billion to acquire Harmon International (HAR). Samsung's largest overseas acquisition to date, the deal fast-forwards the company to the forefront of the market for high-end automotive infotainment systems.
Growth has been slowing in the mature smartphone market, but several factors may point toward an uptick. Research firm Strategy Analytics projects that global shipment of smartphone units will rise just 2% this year, to 1.47 billion units. But in 2017 it sees shipments jumping 8%, to 1.59 billion units, thanks to innovative new products from Apple and Samsung.
Apple, which created the modern smartphone market with its touch-screen, app-centric iPhone in 2007, is readying its 10th-anniversary handset, the rumored iPhone 8.
Apple, Samsung Still Lead In Shipments, Profit
Due for release in fall 2017, the iPhone 8 is expected to be the biggest redesign of Apple's smartphone in at least three years. Analysts believe that at least one version of the iPhone 8 will use an organic light-emitting diode (OLED) display instead of the traditional LCD (liquid crystal display) screen.
OLED displays reduce power consumption and extend battery life. They also have faster refresh rates, better contrast, sharper color and a wider viewing angle. Plus, they can be used in curved and wraparound displays.
Other rumors say the iPhone 8 will arrive in three screen sizes: the current 4.7- and 5.5-inch displays and a new 5.8-inch display.
Some Wall Street analysts predict that the iPhone 8 could spark a "supercycle" of upgrades among customers with older handsets.
That would come in handy, at a time when Apple's iPhone unit sales have fallen for three straight quarters on a year-over-year basis. In the company's September quarter, iPhone unit sales fell 5% while revenue dropped 13%.
Apple's latest handsets, the iPhone 7 series, have been selling well, but are supply constrained, analysts say. The iPhone 7 series phones, which launched on Sept. 16, are not expected to spark a return to unit sales growth for Apple.
Apple is the No. 2 smartphone vendor by unit shipments, but its market share has been declining as it has focused more on profits.
BMO Capital Markets estimates that Apple accounted for 103.6% of smartphone industry operating profits in the third quarter. Its share is over 100% because other vendors lost money in the business, resulting in Apple having more smartphone profit than the industry netted overall.
Samsung was No. 2 in smartphone profits with a tiny 0.9% share, BMO said. Money-losers in the smartphone business last quarter included South Korea's LG and Taiwan's HTC.
Samsung remains the leading smartphone vendor by unit sales. It shipped 72.5 million smartphones in Q3, giving it 20% market share. Apple was second with 12.5% market share, having shipped 45.5 million iPhones in Q3, according to research firm IDC.
It remains to be seen what impact Samsung's recall of its Galaxy Note 7 will have on its market share. But when comedians and newscasters are quipping about exploding Samsung phones, it can't be good. Also, preflight announcements on major airlines warning consumers not to bring the Samsung phone on board planes is rotten publicity.
Following the recall, Samsung has been offering cash incentives in addition to replacement phones to Galaxy Note 7 customers in hopes of keeping them loyal to the brand.
Some industry analysts think Apple and rival Android handset makers will pick up market share from Samsung in the wake of its Note 7 problems.
The Note 7 debacle will have a "measurable negative impact" on Samsung in the short term, said Avi Greengart, an analyst with research firm Current Analysis. Samsung will be able to spring back if it fully explains what went wrong with the Note 7 and how it has addressed the problem.
"Samsung is probably going to weather the storm," Llamas said. He noted that the 5.7-inch Note 7 phone-tablet, or phablet, was a niche product that probably never amounted to more than 10% of Samsung's unit shipments in any quarter.
Samsung is expected to launch its next-generation flagship smartphone, the Galaxy S8, in early 2017.
The China Factor: Huawei, Oppo, Vivo, Xiaomi
Among the companies already taking share from Samsung are upstart Chinese smartphone vendors like Huawei, Oppo, Vivo and Xiaomi.
"They're offering high-end devices at midrange prices and midrange devices with entry-level prices," Llamas said. Most are content to focus on Asia, but some — like Alcatel, Huawei and ZTE — are starting to set their sights on the U.S. market, he said.
Huawei was the third-largest smartphone vendor worldwide in Q3 with 9.3% market share by unit shipments, followed by Oppo (7%) and Vivo (5.8%), IDC said.
Huawei, Oppo and Vivo lead in a Chinese market that is rapidly consolidating. Roughly 50 to 60 companies make smartphones in China, but that's down from a couple hundred a few years ago, says Strategy Analytics analyst Linda Sui.
Samsung and its Chinese counterparts use Alphabet's (GOOGL) Google Android operating system in their smartphones.
The Android operating system captured its highest smartphone market share ever in the third quarter. Android accounted for 87.5% of global smartphone shipments in Q3, compared with Apple's iOS, with 12.1% market share, Strategy Analytics said.
Google aims to be a player in smartphone hardware as well, having launched its first Google-branded phone, Google Pixel, on Oct. 4. The device is built by HTC.
Pixel includes Google Assistant, a voice-activated helper; a high-end camera; an OLED display; and unlimited online storage for photos and video. Pixel also features superfast charging. In 15 minutes of charge time it can deliver up to 7 hours of use.
For now, Google Pixel is only available in the U.S. for the Verizon (VZ) cellular network.
"Google is making a much bigger play in hardware," Greengart said. "The battle between Google and Samsung could be a big story next year."
Microsoft (MSFT) has largely retreated from the smartphone market but is rumored to be plotting a return with a Surface branded handset. Also rumored to be making a comeback in smartphones is Nokia (NOK), which led the basic mobile phone era but failed to make a successful pivot to smartphones.
At the same time, BlackBerry (BBRY) continues to shrink as customers abandon its devices.
Clearer Screens, Fast-Charging, Long-life Batteries
Several technologies are likely to fuel innovation in the smartphone industry next year. They include OLED displays, superfast charging, and augmented reality.
"The main innovations will come from the display side," Sui said.
Handset makers are forecast to come out with more smartphones with edgeless displays, where the screen covers the front face of the phone from side to side without a border.
The growth of OLED displays could lead to dramatic new smartphone designs, such as handsets with flexible or folding screens, Llamas said.
The improved screen quality with OLED could fuel smartphone-based virtual-reality headsets, such as Google Daydream View and Samsung Gear VR.
The rollout of OLED displays should provide a lift to companies with exposure to the new technology. Those companies include Universal Display (OLED), which supplies OLED materials and technology, and Applied Materials (AMAT), which makes equipment for manufacturing semiconductors and displays.
Samsung uses OLED displays in its premium handsets, such as the Galaxy S7 Edge, but it makes its own displays. OLED screens will be in short supply as Samsung and other display manufacturers ramp up production capacity, analysts say.
Another technology grabbing consumers' attention is fast-charging battery technology, Sui said. That has stolen the thunder from wireless charging technologies, she said.
With quick-charging tech, you can fully charge your phone in less than 30 minutes, she said.
Apple is looking to add augmented reality technology to its iPhones, Llamas said. It laid the groundwork with the dual-camera system on its iPhone 7 Plus and will add software and improved sensors to create new experiences for users that mix the real world with the digital world through their iPhones, he said.
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