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Samsung's ditching of flagship phone portends Android turf war

[October 12, 2016] By Julia Love and Deborah M. Todd

(Reuters) - Samsung Electronics’s abandonment of the Galaxy Note 7 due to safety concerns will likely touch off a turf war among Android smartphone makers, analysts said, presenting them a rare opportunity to gain share but with less room for arch rival Apple Inc.

Consumers tend to commit to their choice between Apple's iOS operating system for smartphones and Google’s Android, leaving Samsung’s fellow Android manufacturers such as LG Electronics and Alphabet Inc's Google in prime position to strike. Both have newly released phones.

A hardware problem is unlikely to change a customer's preference for software systems, said analyst Jan Dawson of Jackdaw Research.

"Samsung has the premium end of the smartphone market pretty much sewn up on the Android side," he said. “This creates a slightly bigger opening.”

Research firm TrendForce revised up Apple's 2016 smartphone shipment forecasts by 3 million to 208 million, while slashing Samsung's shipments estimates by 6 million. It also raised forecasts for China's Huawei Technologies [HWT.UL], No.3 globally, by 4 million.

"A substantial portion of consumers’ demand will now go to the three major Chinese brands – Huawei, Vivo and OPPO," it said in a note.

Nevertheless, in San Francisco, prime Apple territory, some consumers were switching to the home team, and Apple stock has risen on expectations of a broader move.

"Some people might have already been thinking about making the switch and now here's their chance," said Robin Williams, a sales associate at a Sprint store on Van Ness St in San Francisco, describing some customers moving to Apple.

Bob O’Donnell of TECHnalysis Research said Apple would benefit, "but I don’t think they are going to get all of it because Apple has a single product."

Samsung on Tuesday scrapped the $882 flagship smartphone, in what could be one of the costliest product safety failures in tech history.

The news is a boon for Google, which last week announced a new line of Pixel smartphones, plunging the company into the hardware market that it has previously left to manufacturers such as Samsung. Samsung’s retreat will prompt consumers to take a closer look at Google’s phones.

"Samsung’s meltdown is a big opportunity for Google to do far better with Pixel than it has with its previous Nexus devices," said Richard Windsor, analyst at Edison Investment Research.

Despite the reputational damage, Samsung will remain competitive for premium smartphone sales, analysts said. LG’s V20 smartphone will not arrive in the United States until the end of the month. Google’s Pixel phones do not ship until Oct. 20, and will only be available in the United States at Verizon.

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Android mascots are lined up in the demonstration area at the Google I/O Developers Conference in the Moscone Center in San Francisco, California, in this May 10, 2011 file photo. REUTERS/Beck Diefenbach

"Google needs to be present at retail and with operators in volume in time to meet this demand... it needs to accelerate the launch as much as it can," said Windsor.

ROOM TO SHINE

For consumers seeking immediate replacements for the Galaxy Note 7, it may be easiest to go with another Samsung phone, said O’Donnell at TECHnalysis. “You can’t write off Samsung,” he said.

Samsung is offering to exchange the Note 7s for its flagship Galaxy S7 models. A permanent end to Note 7 sales could cost it up to $17 billion, according to calculations based on analysts' projected shipments of the device.

And Apple may have room to shine, especially before new Android phones arrive.

At a T-Mobile store in San Francisco, salesperson Omar Arreola said some Samsung customers were so upset with the company that they switched to the iPhone 7. "They trust the brand," he said.

Brian Green, whose Note 7 caught fire on a Southwest Airlines flight last week, also said he replaced his device with an iPhone. He raced to purchase the Note 7 after its release, but he said he is unlikely to be an early adopter again.

“Next time I think I'll wait and get it once it's been around the block a few times,” he said.

(Additional reporting by Rory Carroll and Malathi Nayak; Additional reporting by Miyoung Kim in SINGAPORE; Editing by Lisa Shumaker, Sam Holmes and Muralikumar Anantharaman)

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