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End of Galaxy Note 7 predicted to help Apple, but 'big beneficiaries' could be other Android devices

While investment firm Wells Fargo Securities believes Apple and its newly released iPhone 7 Plus will benefit from the discontinuation of the dangerous Galaxy Note 7, it also believes that the greatest potential for gains could be non-Samsung Android handsets.




Analyst Maynard Um issued a note to investors on Tuesday, acknowledging that shares of AAPL had added an incremental $14 billion in market cap at the company's intraday peak. He said that value embeds more than 3 million incremental iPhone 7 Plus units to the company's sales.

Shares of AAPL have been trading higher in the wake of Samsung's announcement that it will discontinue the Galaxy Note 7 after serious flaws led to dangerous fires from units being charged. The incident first began to gain traction just before Apple announced its competing phablet flagship device, the iPhone 7 Plus.

"While we have little doubt that this issue, which we candidly did not anticipate, will help Apple, we think other Android vendors with 5.7-inch phones could see a bigger benefit if Android users prefer to stick with Android (just as iPhone users prefer to stick with the Apple ecosystem)," Um wrote. "LG, Kyocera, and Microsoft have 5.7-inch phones at U.S. carriers (as well as the older Galaxy note). The list of 5.5-inch Android phones (same as the iPhone 7 Plus screen size) is larger and includes Google, Motorola (Lenovo), and Samsung."

In the U.S., carriers are allowing trade-ins of the Galaxy Note 7 for any other device. Refunds are being offered if the user takes a lower-priced phone, while more expensive handsets require the customer to pay the difference.

"Samsung will have to face an uphill reputational climb, though it is unclear this will be short-lived or long-term," Um said. "We see some moderate risk that Samsung will have to be more promotional around its existing and newer phone models, which could have some impact on Apple as well.

For Apple's current holiday quarter, Um has forecast sales of 77 million iPhones— a number he said was "once considered way too high by a number of investors." But in the wake of the Samsung scandal, some estimates have risen "materially above" the 77 million mark, he said.

Despite the fact that Um sees Apple selling a record number of iPhones this quarter, Wells Fargo Securities has still maintained a neutral "market perform" rating on shares of the company. Its valuation range is from $105 to $120 per share, with Apple already trading north of $116 as of Tuesday afternoon.