This column originally appeared on March 30 on Real Money, our premium site for active traders. Click here to get great columns like this.
As positive reactions continue to swell for Samsung's Galaxy S8 and S8 Plus flaghship phones, many of the sales estimates made prior to their launch are starting to look fairly conservative. And from the looks of things, the impact of a strong S8 debut has only partly been priced into the shares of those suppliers that have a lot to gain from it.
But for a couple of reasons, the impact of a healthy S8 reception on Apple (AAPL - Get Report) will probably be limited. Moreover, Samsung's pricing strategy for the S8 is arguably something that Apple bulls should take heart in.
Though odds are that the reception given to the Bixby assistant and other proprietary Samsung software/services baked into the S8 and S8 Plus will (in line with prior Samsung efforts in this area) be quite mixed, the phones' curved 5.8-inch and 6.2-inch displays, replete with a wider-than-normal aspect ratio, should be a big selling point. By packing such large displays into phones that are reasonably comfortable to hold and use, Samsung has given itself a valuable way to stand out relative to Apple and high-end Android rivals such as Alphabet/Google (GOOGL - Get Report) , especially among users who want as much screen space as possible while scrolling through their Facebook (FB - Get Report) feeds and Spotify libraries.
The large displays should also appeal to would-be buyers of Samsung's discontinued and sometimes-flammable Note 7 who haven't yet bought another smartphone. A recent survey of over 1,500 U.S. consumers found 63% of Samsung phone owners saying the Note 7 mess "had no impact on their likelihood to purchase a Samsung phone in the future," and that only 14% had safety concerns about the S8.
Moreover, while the S8's April 21 launch date is notably later than the S7's March 10 launch date last year, Samsung appears eager to make up for lost time. Samsung mobile chief DJ Koh says initial S8 supplies are set to be twice the levels that existed for the S7. There were previously fears that weak initial yields for Samsung's new 10-nanometer chip manufacturing process, used to make the Qualcomm (QCOM - Get Report) Snapdragon 835 and Samsung Exynos 8895 processors that power S8 models, would limit early S8 production.
Analyst estimates going into Wednesday's S8 unveiling were certainly subdued. KGI Securities forecast just 40 million to 45 million S8 units would ship this year, less than the estimated 52 million S7 units that shipped last year. The S7, which didn't feature major hardware improvements outside of a revamped rear camera, saw a strong debut last spring with the help of heavy marketing spend and relatively aggressive pricing, but saw demand cool off soon afterwards.
Korean firms KB Investment and Dongbu Securities respectively forecast 46 million and 47 million sales. Counterpoint Research was a little more aggressive, forecasting 53 million. But all of these estimates were well below the 60 million units Samsung was reportedly aiming for as of January, and which now seems within reach. Koh just said Samsung expects the S8 to outsell the S7, but didn't give any numbers.
Should Apple be worried? Slightly, perhaps, but probably not seriously. Loyalty rates among both iPhone and Android users have been pretty high for a while, as consumers accustomed to using a particular OS and hooked on its various apps and services prove averse to jumping ship. One can imagine a trickle of large-screen aficionados who are attracted to the S8 Plus' massive and well-designed display, and feel the iPhone 7-Plus' 5.5-inch LCD doesn't cut it, making the leap, but it's harder to imagine that trickle turning into a flood.
This is especially true since rumors abound about Apple launching an iPhone 8 with a 5.8-inch curved OLED display (along with smaller LCD models) this fall. The iPhone 8 is also expected to feature wireless charging support and a front camera with 3D sensing technology that enables augmented reality applications. That should be enough to hold most large-screen iPhone fans in the market for a new model over. Between the S8 and the iPhone 8, there's a real chance that high-end smartphone upgrade rates, pressured over the last couple of years by the end of traditional phone subsidies and a lack of big hardware improvements, could rebound some in 2017.
Meanwhile, the S8's upscale pricing acts as one more sign that high-end smartphone vendors are getting comfortable carrying out de facto price hikes via new phone launches. Whereas the S7 and S7 Edge respectively sold for $672 and $792 at Verizon (VZ - Get Report) when they launched, the S8 and S8 Plus go for $720 and $840. Prices are similarly higher at other U.S. carriers.
Already, Apple gave the iPhone 7 Plus a $769 starting price, $20 higher than the iPhone 6S-Plus'. Demand for the 7-Plus and its dual-lens rear camera nonetheless topped expectations and helped Apple's iPhone ASP rise by $4 annually to $695 in the December quarter, in spite of the early 2016-launch of the mid-range iPhone SE.
While a rumor that the iPhone 8 will sport a $1,000-plus starting price should be taken with a grain of salt -- more likely, that figure represents the price for the most costly iPhone 8 units -- it does seem quite plausible that the phone will have a starting price above the 7-Plus'. Especially in the wake of Samsung's S8 pricing.
Of the various mobile suppliers with strong S8 exposure, only OLED materials and IP provider Universal Display (OLED - Get Report) has rallied since the S8's unveiling. Universal, which soared last year as OLED iPhone reports swelled, rose 2.4% on Thursday with the help of bullish Goldman and Cowen notes. Goldman's Brian Lee believes the S8's displays use new Universal materials that likely sell for a 20% to 30% premium over the ones used in the S7, and also thinks Samsung could be shifting from paying Universal fixed licensing fees to per-device royalties. Cowen's Robert Stone argues a new and more favorable licensing deal with Samsung could be reached by year's end.
Skyworks (SWKS - Get Report) and Broadcom (AVGO - Get Report) also might have much to gain from strong S8 uptake. Skyworks blasted off in January after providing strong guidance and suggesting on its earnings call that sales to Samsung would rise sharply in the March quarter ahead of the S8 launch. At the time, B. Riley and Canaccord both predicted that Skyworks would grow its RF chip content with the S8.
Broadcom supplies both RF chips and Wi-Fi/Bluetooth combo chips for high-end Samsung phones, and (thanks partly to a dominant position in the market for the FBAR filters used in large quantities by 4G RF subsystems), has seen its chip content within the average high-end phone grow as devices support a greater number of 4G bands and support higher 4G speeds. It's worth noting here that some S8 models have been reported to support 24 4G bands (4 more than the S7), and that Broadcom suggested on its last earnings call that the S8 "comes with an increase in Broadcom's RF and Wi-Fi connectivity content." It also expects the iPhone 8 to bring content increases.
Rival Qorvo (QRVO - Get Report) should also benefit from the S8, but perhaps not as strongly. Though indicating on its last call that its content share with the S8 will be "pretty stable" relative to the S7, the company also hinted it won't have the massive share it had last year with some North American S7 models.
Likewise, Qualcomm will benefit from Samsung's use of the Snapdragon 835 and complementary chips within certain S8 units, including U.S. models. But with other high-end Android phones such as Google's Pixel, LG's G6 and Sony's (SNE - Get Report) Xperia XZ Premium exclusively (rather than partly) relying on Qualcomm processors, Samsung share gains at the expense of high-end Android rivals could hurt Qualcomm's sales in foreign markets where Exynos-powered S8 units are the norm.
The guidance provided by S8 suppliers during their April earnings reports should yield some insight into what early demand for Samsung's new flagships looks like. The last 48 hours certainly give reasons to be optimistic that Samsung can do much to offset the slowdown in Apple demand many of these suppliers are seeing ahead of this summer's iPhone 8 ramp.