Is Samsung's Pain Apple's Gain? ETFs In Focus

Two premium smartphones – Galaxy Note 7 and iPhone 7 offered respectively by Samsung (KS:005930) and Apple (NASDAQ:AAPL) – had two different stories to tell in September. While Note 7 was caught in a web of controversies, iPhone 7 marched ahead. And with this, there is likely to be a sea change in global smartphone market share. We’ll tell you how.

Inside Samsung’s Woes

South Korea-based smartphone maker Samsung was an uptrend in the last one-year period (as of October 17, 2016). But its shares plunged in mid-September when the company advised not to use and charge its high-end Galaxy Note 7 phones as the devices can turn inflammable while charging (read: Why Korea ETF Investors Will Pay for Samsung's Mistake).

The U.S. Consumer Product Safety Commission also issued a warning and told that it is figuring out a formal recall with Samsung. Global airlines also raised concerns over the leading device.

The South Korean tech behemoth announced a global recall program as it had already shipped 2.5 million units of this product. Apart from the product recall, offers of trade-ins and gift cards were also made to U.S. customers.

But to make the matter worse, even the replacements were overheating. As a result, Samsung Note 7 recall in the U.S. included replacement phones as well. These back-to-back issues were enough to raise questions over Samsung’s assessment of Note 7 and spoil its leading image and overall sales prospect to some extent. To maintain its customer base, Samsung offered another around of incentive of a $100 credit to Note 7 buyers who chose another Samsung phone.

Thanks to all these adversities, Samsung cut its third-quarter operating profit guidance to 5.2 trillion South Korean won ($4.66 billion) from 7.8 trillion won. The revenue guidance has also been pared down to 47 trillion won from 49 trillion. Eventually, Samsung announced the end of sales and manufacturing of its high-end Galaxy Note 7.

Inside Apple

On the other hand, the journey of Apple has been tough in recent times due to slowing sales of its prime offering iPhone. While troubles started last year, the first two quarters of the current fiscal year were particularly disappointing.

In this reporting cycle, technology earnings are expected to be down 1.8% on a 1.1% decline in revenues, as per the Earnings Trends report issued on October 12, 2016. The tech slump is mainly triggered by Apple earnings, which is expected to fall 20.7% from the same period last year on 9.6% lower revenues. Apple shares returned over 8% in the last one year (as of 0ctober 17, 2016).

Did Samsung Crisis Open Doors for Apple?

But the trend may change ahead. Apple unveiled the latest iPhone 7 right when Galaxy Note 7 started catching fire. Users may incline toward high-end Apple products and dent Samsung’s market share to Apple. Investors should note that in the second quarter of 2016, Samsung had the highest market share (22.3%) in the smartphone segment followed by Apple (12.9%), as per Gartner (read: Should You Invest in Apple ETFs Following Buffett?).

According to Digitimes Research, global smartphone shipments are likely to expand 7.2% year over year to 1.42 billion in 2016 and another 7% to 1.52 billion units in 2017. Samsung will continue to be the top vendor with Apple being the next. But Apple is expected to narrow down the annual shipment difference with the topper to around 80 million units.

As per a few analysts, demand for the iPhone 7 products is solid. Some say that this Samsung debacle would give Apple the golden opportunity to sell 15 million more iPhones. The Apple stock touched a high in early-October since December 2015 just after the report Samsung’s closure of Note 7 production (read: Catch Apple's Rally with These Top-Ranked Tech ETFs).

If this was not enough, Apple and Samsung have been fighting a court case with the latter having been charged of copying Apple’s iPhone designs.

ETFs to Play

So, investors betting big on Apple’s likely market share gain ahead, can play the below mentioned ETFs with considerable exposure to Apple (see all Technology ETFs here).

iShares Dow Jones US Technology ETF IYW – Apple has 16.89% exposure and the top position in the basket.

Select Sector SPDR Technology ETF XLK – Apple holds the top spot (14.25% weight).

Vanguard Information Technology ETF VGT – Apple has 13.1% exposure and again holds the top position (read: Top-Ranked Sector ETFs & Stocks for Q4).

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