Apple is ramping up iPhone production after Samsung recall
Apple and Samsung’s simmering rivalry was taken up a notch amid the South Korean firm’s Galaxy Note 7 meltdown, which is expected to cost billions and threatens to leave its reputation in tatters.
Around $18bn ((£14.8bn) was wiped from Samsung’s value as shares plummeted more than eight per cent, its biggest intraday loss since the financial crisis, after pulling production of the flagship phone for good following a failed recall that’s expected to burn a large hole in its bottom line.
The world’s biggest smartphone maker was finally spurred to ditch the handset completely after the problem of it going up in flames persisted in replacement devices just weeks after its launch was heralded as a fightback against Apple.
Read more: Samsung's completely ditching disastrous Galaxy Note 7 production
The setback has handed its fiercest competitor, Apple, a lucky break. Shares were on fire, hitting a 2016 intraday high of $118.69 after a tough year for the brand in which it reported its first ever slowdown in sales and revenue since the launch of the first iPhone a decade ago.
Apple has already ramped up production of its latest flagship phone, the iPhone 7, in the last two weeks, at least in part in response to the Samsung recall, according to one analyst.
“Initially Apple had an 80m unit run for iPhone 7 but that’s been ramped up to 100m in the past two weeks. Part of that must be direct implication from Samsung’s troubles, along with other factors,” Northern Trust Capital Markets’ Neil Campling told CIty A.M..
“It’s a setback especially this time if the year and also at a time when Apple’s product is nothing revolutionary. It’s handed an advantage back to them [Apple].”
CCS Insights’ Ben Wood said: “Samsung’s difficulties are an unexpected bonus for Apple. It’s iPhone 7 Plus provides an alternative to consumers wanting to buy a large screen smartphone. Apple is one of the few companies that could ramp up its production volumes to cope with increased demand.”
“Although other manufacturers will be happy to take up any slack left by Samsung’s current difficulties, all of them will also likely be feeling like they have potentially dodged a bullet. I guarantee all phone makers and other consumer electronics manufacturers will be revisiting their quality control processes to make sure they don’t encounter similar issues,” he added.
The fiery demise of the Galaxy Note 7 is just the latest consequence of the intensifying competition between the two brands in a slowing and increasingly competitive smartphone market.
The two are still tussling over a half decade-old dispute regarding design patents. On Tuesday they presented their cases to the highest court in the US in the first case of its kind to be heard in more than a century.
Samsung is challenging a ruling that it must pay Apple $399m for copying features such as the iPhone’s rounded face and bezel. The South Korean firm argues the amount, part of a $548.2m damages bill from a 2012 verdict, should be returned because patent law was applied too broadly.
Read more: Samsung's Galaxy Note 7 could be its best chance to pip Apple to the post
Apple argues the design features it copied were fundamental to the success of the product and the full amount of damages should be paid, taking into account the total sales made from the phones.
It’s the first time the Supreme Court has heard a patent case for more than 120 years.
The decision on the case, due next year, will fall at an even more crucial time for both brands as Samsung begins to assess the longer term fallout from the Note 7’s demise on its reputation and as Apple seeks to innovate the iPhone in its 10th anniversary year.