With Samsung's (NASDAQOTH: SSNLF) Galaxy Note 7 line being pulled from shelves, which consumer tech companies might benefit?Alphabet's (NASDAQ: GOOG)(NASDAQ: GOOGL)new Pixel phone looks like it could win over some burned Note 7 customers, but the search giant lacks meaningful carrier distribution.
In this clip fromIndustry Focus: Tech, Motley Fool analystsDylan Lewis and Evan Niu, CFA, discuss the fallout from the Note 7 recall and the smartphone market at-large.
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A full transcript follows the video.
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This podcast was recorded on Oct. 14, 2016.
Dylan Lewis: I've seen [Alphabet's] Google thrown aroundin the list of potential winners as well. The idea is kind of similar with Apple(NASDAQ: AAPL) --they released the Pixel phone somewhat recently. Having amajor potential competitor off the table bodes well forpeople giving that a shot. That's not going to be something that meaningfully contributes to the numbers for Google.I think, when you're talking about Apple and Google here, seeing Samsung falter and knowing that there might be a slightly larger bite of the smartphone market available to them isn't something that's thesis-altering. It'scertainly interesting for some of the component manufacturersthat are specifically in some of these devicesand not others. But big picture,if you like Apple and Google already, stick with them. But don't buy solelyon the idea that they might pick up someincremental business here.
Evan Niu:Yeah.The Pixel looks like a pretty good phone. Of course, it's Google's first phone,they designed the whole thing. They'reoutsourcing manufacturing, naturally, toHTC. But as far as them designing the phone itself, this is the first time thatthey're really doing the whole thing. It looks like a really good phone. I think, definitely, people that arenot getting the Note 7 might consider the Pixel,because it's a pure Google phone stock Androidwithout all the third-party software and all this stuff on it. But I think the biggest challenge there in terms ofgetting people to switch from a Note 7 to a Pixel XL orwhatever the large one is called, it's really just about distribution. Google doesn't have distribution channelsin the way that most companies in the space do. They'repartnering withVerizon,which is the only carrier partner. Other than that, they'reselling it online through the online store. But, itmight surprise you how many people,when they need a new phone, they go to the carrier store. They just go to the retail store.
Lewis:Itbecomes kind of a default decision, right?
Niu:Yeah. Andit makes some sense,because that's where they have the most selection,they can deal with all their plan stuff. I personally tend to buy things online,and I think a lot of people do. But, carrier distribution is an incredibly important channel for any phone maker. People thatalready know which phone they want they'll just go and buy that phone online. Buta lot of people don't know, and they still like to shop around,like any other product in their lives, versuspeople like you and me are probably so loyal thatit's not even a decision, it's just, when am I going to get my iPhone? But,for a lot of people, their phone breaks, or it'stime for an upgrade, they just go to the carrier store and pick one. For theother carriers other than Verizon, Pixel'snot going to be there, because Google is distributing themselves. It'sharder for Google to get thesecarrier relationships going,because the carriers want more control. It's harder for Google to negotiatebecause they've never been a big player in thephysical smartphone space. So I think the biggest thing that'sgoing to hold them back is theirlack of distribution.
Lewis:It sounds like the rundown forinvestors here is, Apple, Google,possible beneficiaries. Thepeople that might really see some importance swingsin what goes on with their numbers aresome of the component manufacturers like you talked about,Taiwan Semiconductor. My feeling is, forSamsung's business, if they're able to keep the bad PR andnegative brand association containedto the Note line, then this won't be something that's really awful for them long term. If it does start to bleed into the otherproducts they offer, the S7 and things like that,it could spell trouble for their mobile segment for a long time.
Niu:Yeah,the main thing is to figure out what the hell is going on with these things. Clearly,if they launch a phone next year and it has the same thing,that would thesis altering, two in a row. And,if they can't figure it out,there's reason to think that there might be another one.
Lewis:Yeah,I think a lot of consumers want them to know exactly what's going onand tell the public. Then we might see anice rally in Samsung sales.
Niu:They can'treplicate this in their labs! It'sjust crazy.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Dylan Lewis owns shares of Alphabet (A shares), Apple, and Verizon Communications. Evan Niu, CFA owns shares of Apple. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and Apple. The Motley Fool has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. The Motley Fool recommends Verizon Communications. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.