This commentary originally appeared on Real Money Pro at 09:00 on Oct.11. Click here to learn about this dynamic market information service for active traders.
Perhaps you've heard the saying, "I'd rather be lucky than good". I've never understood that sentiment. If you're good at something, you can always be good at it. If you're merely lucky, your luck will eventually run out.
It's not a stretch to call Action Alerts PLUS charity portfolio holding Apple (AAPL) a good company. It used superior products, technology, and execution to defeat competitors like Nokia (NOK) and Blackberry (BBRY) . Apple doesn't just court new customers; it assimilates them, like the fictional cybernetic villains The Borg from Star Trek. Apple draws consumers into its ecosystem and never lets them go, converting them to loyal repeat customers.
In addition to being good, I'd classify Apple as extremely lucky right now. Apple's biggest competitor in the cellphone market, Korean electronics giant Samsung, is suddenly in complete disarray. The recall of the Galaxy Note 7 has morphed into a nightmare. Unable to resolve the product's issues, the company is now requesting that owners of the product simply turn off the devices.
Samsung's issues are reminiscent of those faced by Chipotle Mexican Grill (CMG) last year. When Chipotle customers were repeatedly affected by norovirus and E.coli outbreaks, the company seemed powerless to stop it. An isolated case would've been quickly forgotten; instead, the brand was damaged. A stock that traded at $750 one year ago is worth less than $450 today.
Customers are creatures of habit, but given a strong enough incentive, they'll break a habit like dining at Chipotle. The habit of purchasing Samsung products can also be broken.
A CNET readers' poll indicated that nearly half of current Samsung users surveyed plan to switch to the iPhone. That survey was taken nearly a month ago, before the recall situation spiraled out of control.
Apple's good fortune isn't confined to Samsung's production and safety woes; there is also the issue of timing. Thanksgiving is just six weeks away, marking the start of the holiday shopping season. Even if Samsung resolves the issues with the Galaxy Note 7 by then, the stigma will remain. Apple is about to have a merry Christmas, gift-wrapped by its largest competitor.
One month ago, Credit Suisse analysts pegged the potential damage to Samsung over the Galaxy Note 7 at $1 billion. Now, various analysts are anticipating a loss of over $5 billion. In my opinion, these estimates are far too low, because they don't take into account future lost sales due to current Samsung customers being assimilated into Apple's Borg-like ecosystem.
Once those consumers start using iPhones, many will never look back. When considered in this manner, the potential damage to Samsung is massive, incalculable, and perhaps existential.