Samsung Recalls Galaxy Note 7; IDC Slashes Smartphone Estimates; China Probes Uber-Didi Deal -- Eye On Tech

| About: Uber (UBER)

Summary

After reports of exploding batteries, Samsung bites the bullet and halts sales of the Galaxy Note 7 and issues a recall.

The IDC slashed its 2016 smartphone shipments growth estimates to 1.6% from 3.1%. Google will shut down its Project Ara plans, which was the company's modular smartphone initiative.

Chinese regulators take a closer look at the Uber-Didi Chuxing deal, although sources say it is likely to be approved still.

Samsung Recalls Galaxy Note 7

The South Korean-based electronics maker began taking pre-orders for the Samsung (OTC:SSNLF) Galaxy Note 7 earlier this month and the device officially launched on August 19th. However, it's quickly hit a big roadblock.

Apparently, the device has a battery flaw, one that could allow for batteries to explode and catch fire while charging. As a result, the company has halted sales of the Note 7 in 10 countries and has also issued a recall.

Samsung has already shipped 2.5 million units of the Note 7, and the company's mobile division president Koh Dong-jin said that while he's not sure how much it will cost, "it pains my heart that it will be such a big number."

Man, what happened? It was just a few weeks ago that we were writing about Samsung, noting that the stock had aggressively broke out to new highs on optimistic smartphone sales, shipments of which were growing as the company finally seemed to have a chance at catching Apple (NASDAQ:AAPL) in the U.S.

Not that Samsung would have dethroned Apple in just a few quarters. But with the latter set to (likely) unveil its new iPhone next week and reporting slumping sales over the previous two quarters, it was Samsung's chance to strike while the iron was hot.

At this point in time, there's no telling what this will do to both earnings and profits at Samsung and what other implications it could carry beyond that. Although it's almost certain to be a turn off for consumers. Had this happened to Apple, it would be on the front page of every news outlet in the country. Luckily for Samsung, they don't face the same scrutiny, at least in the U.S.

Now if Apple's new iPhone really is amazing, it will have even more firepower against its biggest rival.

Google Calls It a Day on Project Ara

Let's keep the smartphone thing rolling for a bit here. Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) is hanging up the gloves when it comes to Project Ara, the company's initiative to build a smartphone with interchangeable modules. The customization would allow users to swap out cameras, speakers and batteries.

(From the link above): "The decision is said to be part of an effort to unify Google's hardware development under former Motorola president Rick Osterloh."

Google is getting good at cutting ties with what's not working. Or at least, cutting back its resources on such projects. The company has reportedly slashed its workforce on Google Fiber, after the company has experienced higher-than-expected costs. Now it's scrapping its Project Ara, (although it may license the technology to other companies).

It seems that CFO Ruth Porat really is applying the type of financial discipline that investors were hoping for. Enough to juice operating margins and boost the bottom line, without sacrificing the company's future revenue growth. Although its "other bets" division is still seeing losses outpace sales, one has to expect the company to continue taking some "moonshots."

IDC Cuts Smartphone Shipments Outlook

One more smartphone topic, one more!

International Data Corp. has not been too bullish on the smartphone market this year. It's latest bit of news shows that even more so, as the research firm slashed its shipments forecast for the year.

Unit sales will come in around 1.46 billion for the year, an increase of just 1.6% this year, according to IDC. This is in contrast from the firm's previous estimate, calling for global growth of 3.1%.

What's behind the fall? IDC pins some of the reasoning on the idea that users are simply replacing old models, not purchasing new units. "From a technological standpoint, smartphone innovation seems to be in a lull as consumers are becoming increasingly comfortable with 'good enough' smartphones," said Jitesh Ubrani, a IDC senior research.

Larger-screened smartphones are expected to see superior growth, while IDC did blame some of the shortfall on the fact that consumers are waiting for Apple's new iPhone.

Enough of the data, what does it mean? Simply put, the smartphone market is indeed becoming saturated. Yes, consumers will always need new phones and yes the global population continues to grow.

But with so many people already owning smartphones, the growth potential simply isn't what it was several years ago. Make no mistake about it though, 1.46 billion units of anything is a lot to sell in one year, while sales in emerging economies like India are still going strong (roughly 17% shipment growth in Q2).

So it's not all doom in gloom. After all, slow growth is better than no growth. But it's still concerning to see growth of just 1.6%. The "good enough" argument resonates too. I have the iPhone 6 and felt no need to step up to the 6s. It still works great, I can pay with it, and thanks to updates, can use it for a number of non-hardware related tasks.

Will the iPhone 7 change that and make consumers crave an upgrade the way previous iterations did? I don't know. And if it doesn't, other smartphone makers will likely have the same problem. If that's the case, Apple won't be the only one in trouble.

China Regulators Looking at Uber-Didi Deal

For those that aren't aware of Uber's (Private:UBER) deal with Didi Chuxing (Private:DIDI), here is a super quick rundown (and here's the longer version):

Uber and Didi were caught up in a major price war in China, something that was hurting both companies as they fought for control of a major territory. However, the two called a truce, Didi gave $1 billion to Uber and Uber acquired a 17.7% stake in Didi in an agreement that resulted in Uber leaving China. That was likely a good idea considering that Uber lost over $1.2 billion in the first half of 2016.

Deep breath.

But the deal has attracted regulatory scrutiny in the country where the companies were having said price war: China.

Chinese regulators have twice met with Didi Chuxing management following the announced deal, as the regulators look to get a deeper understanding of the market. And while the deal leaves Didi with roughly 90% of the ride-hailing market to itself, according to Bloomberg, the "odds are slim" regulators will call off the deal.

The companies could be hit with several fines or punishments if they fail to file the correct paperwork with China, but by most accounts, the deal doesn't seem like it won't be approved.

That's good news, I think. I guess at this point it doesn't really matter, as Uber and Didi tend to be better reading material for most investors, considering neither is a publicly-traded entity.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.