The past week has been one to forget for both Apple and Samsung. While Cupertino was handed a hefty tax bill by the European Commission, Sammy has had to recall every Galaxy Note 7 unit sold so far for fear of them exploding.
But which one will be most damaging, and which will quickly be forgotten? Apple’s tax fight is sure to rage on for months, but will faulty phones leave a bad taste in the mouths of Samsung fans a lot longer?
Join us in this week’s Friday Night Fight as we discuss the sad start to September for Apple and Samsung.
Killian Bell: Both Apple and Samsung have had pretty terrible weeks that they’ll want to forget, but it seems like Samsung’s will be much easier to overcome.
There’s no denying that its Galaxy Note 7 recall couldn’t have happened at a worse time with the iPhone 7 right around the corner, and that’s surely going to have some impact on sales — but it will all be forgotten about once Samsung has replaced everyone’s phones, and demand for the Galaxy Note 7 will remain high.
In contrast, Apple’s big Irish tax bill is going to cost the company a fortune — $14.52 billion, to be exact. And rather than just pay up, the Cupertino company is going to fight it (with help from the Irish government), which means that like any Apple legal battle, we’re going to continue hearing about it for months.
Apple’s reputation is going to take a much bigger hit than Samsung’s, then. No one likes a billion-dollar corporation that avoids paying tax — but who’s going to say bad things about a company that gives you a brand new smartphone because 0.1 percent of all units sold were faulty?
Luke: I disagree. Ultimately, this is two questions in one: How much will the tax demands hurt Apple, and how much will the Note 7 debacle hurt Samsung?
On Apple’s side, I’m going to suggest it won’t be as painful as some are suggesting. Sure, the precedent of retroactively applying tax in Europe could hurt smaller companies which exploit similar tax arrangements, but it won’t ultimately make much of a dent on Apple. The company has $200 billion in the bank and the amount that you’re talking about is less than the profit Apple makes in a single quarter. If anything, you’d expect this decision — and Apple’s suggestion that it will fight it — to have a “scaring the horses” impact on investors, but AAPL stock hit its highest point of the week yesterday after all the news had come out.
In terms of reputation, I don’t see this making much of an impact, either. The global taxation system is flawed, something even Tim Cook has acknowledged, but the fault isn’t with individual companies in taking advantage of tax structures they believe to be legal. It would be far more damaging, in fact, if Apple suddenly announced that it was going to not structure its tax arrangements in this way. I argued earlier this week that Tim Cook is being a bit naive if he truly thinks he can appear to hold the moral high ground with his stance — as he has previously done on issues like LGBT rights and user privacy from surveillance — but for most people this wasn’t information they didn’t already know.
Samsung, on the other hand, has just launched a phone the tech press was raving about: only to then turn around and admit that one of its hottest features is the ability to blow you up while you’re charging it. It would be bad enough if this was taking place with a less high-profile phone at a different time of year. But we’re talking about the week before the iPhone 7 Plus — a.k.a. the Galaxy Note 4’s biggest rival — is set to be unveiled.
Given that many fans may now look elsewhere for their phone, and the damage this does to a brand which already suffers the stigma of making cheap, low-end products (regardless of whether or not you think this has changed), there’s no doubt about who had the worst week.
Incidentally, wasn’t Samsung the company which jumped on the iPhone 6 Plus when there were rumors that it bent slightly if you sat on it? I guess that kind of criticism is blowing up in their face now, isn’t it? Pun intended.
Killian: Just because you “suggest” it won’t be as bad as some say it will, that doesn’t mean Apple’s going to get off lightly. Sure, $14.52 billion seems small in comparison with how much cash Apple has in the bank, but it’s still a considerable sum of money that Tim Cook won’t be happy about handing over. Think about how many acquisitions Apple could make with that.
And yes, I agree the taxation system is flawed. Also, I don’t blame Apple for taking advantage of it. Any other company in that situation is going to hand over as little as it can, and so long as it’s legal, I don’t see anything wrong with that. No one can expect Apple to voluntarily pay more tax, no matter how much cash it has sat around.
Nevertheless, companies that avoid tax and have special deals with governments are never looked upon favourably. Look at all the petitions and boycotts that Vodafone was faced with back in 2010 when it was discovered that the U.K.’s HM Revenue and Customs wiped out a £4.8 billion ($6.38 billion) tax bill.
As for Samsung, yes exploding phones don’t look good, but the company is doing the right thing by recalling every single model sold and replacing them with brand new ones. Did we see Apple doing that when iPhone 4 owners couldn’t make calls with its dodgy antennas? Or when iPhone 6 Plus owners found their handsets bending in their pockets if their pants were too tight? No.
I don’t doubt that a small percentage of Galaxy Note 7 buyers may simply hand their phones back and choose another smartphone. But the vast majority won’t. It’s still the best device of 2016, and it has features you won’t get from the iPhone 7 Plus.
How many people do you really think will settle for an iPhone without wireless charging, a water-resistant design, a headphone jack, expandable storage, a curved display, an iris scanner, and everything else the Galaxy Note 7 has when they could be gifted a brand new model without any battery faults?
This won’t damage the Samsung brand because the company has acted quickly to address the problem. If it was ignoring it, then I would have massive concerns — but it isn’t. We’ll have forgotten it by Christmas while Apple’s fight against tax rages on.
Luke: So what exactly are you expecting to happen to Apple as a result of this then? I’ve already laid out the two ways this could conceivably hurt Apple, and argued why they won’t make the impact you think they will.
Samsung, on the other hand, has just had to remove a flagship phone from the market because it ran the risk of blowing up. The company has never had a good reputation for attention to detail, whether you like it or not, and this is the type of story which could have a significant impact on customer’s perceptions. Even if it doesn’t, the fact of the matter is that when Apple announces its new iPhone 7 next week Samsung will have lost the first mover advantage it had. I’m not expecting the iPhone 7 to be as revolutionary as next year’s model, but I still think it’s going to be pretty solid phone — and particularly in the dual-camera iPhone 7 Plus variation that Samsung’s Note 7 is competing against.
I know you want Apple to come out of this badly, and I know your love of Android devices means you’re blind to tiny faults like exploding handsets, but I don’t think your argument really holds too much water. You know, that wet stuff you need to keep close at hand if you’re a Galaxy Note 7 customer.
Killian: Handing over $14.52 billion in taxes will hurt Apple. Yes, the company will have plenty of cash left over, but that’s not a small fine, and Apple won’t be happy about paying it. It won’t be happy about fighting over it for months, either. This will be a drawn-out affair.
The Galaxy Note 7 issue will blow over, and it’s not going to hurt Samsung as much as you think it will. Once it goes on sale again without the battery issue, it will continue to be the best smartphone money can buy — even after the iPhone 7 makes its debut.
Anyway, let’s hand this one over to the readers now. Which company do you think has had the most damaging week? Apple with its giant tax bill? Or Samsung with its exploding smartphone?
Friday Night Fights is a series of weekly death matches between two no-mercy brawlers who will fight to the death — or at least agree to disagree — about which is better: Apple or Google, iOS or Android?