Apple (AAPL) shares closed at $143.70 today, April 3, near the record high of $144.12 that the stock set on March 29. The stock, a member of my long-term 50 Stocks portfolio, since November 8, 20165, was up 24.07% for 2017 as of the April 3 close. (The shares are up 29.95% since I added them to my 50 Stocks portfolio.)
And the stock looks good to rally further–as long as investors and traders don’t challenge the “long-term super-cycle” story for Apple. If you own Apple, or have been thinking of buying Apple, or just work in an office where people still hang around the coffee machine, you’re familiar with the story. After a lackluster iPhone 7, which left potential buyers less than enthused with a paltry list of new features, Apple, the story goes, is set to blow out the feature offerings on the iPhone 8, the 20th anniversary iPhone, due in the fall of 2017. That will propel Apple to new heights in sales and market share and profits–even though sales of the iPhone 7 and 7Plus have been disappointing.
The next big test of that story, however, is set for April 21 when Samsung’s new Galaxy S8 is scheduled to go on sale. The S8 launch is a big deal for Apple, Apple investors, and Samsung.
Samsung’s Galaxy Note 7 was a debacle. The phone eventually had to be recalled after persistent problems with exploding batteries. Samsung’s smartphone sales fell 8% year over year in the fourth quarter of 2016 and the company lost 2.9 percentage points in market share. That let Apple take over the No. 1 position in global market share in the fourth quarter with 17.9% of the market (up from 12.5% in the third quarter of 2016) to Samsung’s 17.8% share, down from 20% in the third quarter of 2016.
Apple’s gain in market share–to 17.9% from 12.5%–in the course of a quarter is huge. Especially since both Apple and Samsung have been losing market share in China to Chinese manufacturers selling competitively featured smartphones at far lower prices.
That leaves Apple (and Samsung and Chinese smartphone companies such as Huawei (9.5% global market share in the fourth quarter of 2016) and Oppo (6.2% market share)) facing a huge question: How much market share will the S8 be able to claw back for Samsung?
Part of that will depend on the comparative packages of features on the S8 and the iPhone 8. Samsung announced its phone to the press in March so we know what the phone will offer.
And it’s an impressive package.
The screen follows the format of the Galaxy S7 Edge. The new Infinity Display offers a big 5.8-inch screen that curves its way around most of the phone. The home button has been replaced by a touch-sensitive control strip on the bottom of the screen. That change adds to the usable area of the display and is similar to the “Force Touch” and “3D Touch” capabilities of the iPhone. The company has moved the fingerprint sensor to the rear of the phone and the S8 also offers the retinal-scanning capabilities that Samsung debuted on the Note 7. The phone will also offer an improved digital assistant–thanks to Samsung’s purchase last year of Viv, the company originally behind Apple’s Siri. Samsung’s Bixby will make its debut on the S8. Early reviews have said Bixby isn’t as good as Google Assistant (which is also on the S8) and is about as good as Apple’s Siri was a couple of years ago. Samsung, however, says that Bixby will be more “conversational” in its understanding of commands than Siri is. Bixby won’t initially be available except on phones in Korea and the United States. Samsung intends to turn Bixby into a rival to Amazon’s Alexa as a voice interface to everything, but it has a way to go.
On April 21, though, the reviews stop being important and actual sales count. Will potential customers decide that the package is enough to make them rush to buy–especially at a very heady price of $720?
If initial sales figures show that Samsung has a winner, I’d expect to see Apple shares pull back. A winning S8 would deliver market share gains to Samsung–it’s got to do better than the Note 7, right, simply by not exploding)–and it would tell investors and traders something about how much damage the Note 7 disaster did to Samsung in this market in the long run. Launching five months or so before Apple’s iPhone 8, Samsung’s S8 has a chance to build up some momentum in the market ahead of the Apple device.
But there’s another question about Apple and the iPhone 8 that Samsung’s S8 will answer. In recent quarters both Samsung and Apple have faced what looks like resistance from potential smartphone customers over price. Especially in overseas markets such as China. If sales of the S8 seem to be sluggish because of price that too would be a negative for the Apple super-cycle story. We don’t yet know what the iPhone 8 will sell for but it’s sure to be a premium price and some stories have pointed to a $1,000 super-premium edition. Sales of Samsung’s S8 will give us an idea of how much of an issue high prices are likely to be for the iPhone 8.
I don’t see any reason to run for the hills on Apple here. But I would be cautious at the current record price. I’d watch the Samsung news on the first month’s sales for the S8. And I’d also remind myself that super-cycle story or not, the March and June quarters are never especially strong for Apple.