Samsung Finally Finds Out Why Its Phones Caught Fire, Plus Obama’s Impact On The Economy

By 01.23.17

morning-brew-new

Enjoy your January 23rd hand-crafted Brew!

QUOTE OF THE DAY

“Qualcomm built its business on older, legacy standards but reinforces its dominance through exclusionary tactics and excessive royalties” — Apple, throwing some major shade at Qualcomm over the two companies’ business relationship turning sour. More on that later.

Market Snapshot

  • All eyes were on the presidential inauguration on Friday. The results: the dollar dropped while stocks finished higher, marking the first time in roughly 50 years that a president was greeted on his first day with green markets

Not This Time, Qualcomm

…Apple puts its foot down. After years of allegedly overcharging Apple on royalty fees, the Fruit Giant (+0.18%) is taking its beef with Qualcomm (-2.42%) to the courts in a massive $1 billion lawsuit. Essentially, Qualcomm runs the show with every telecom provider by supplying modem chips to connect cell phones to cellular networks—in return for a small slice of the pie, that is. Yep, licensing royalties. Apple claims that Qualcomm has been charging them over five times more than anyone else in the market, making innovation more and more costly. Monopoly much? It’s starting to smell like one. And Apple isn’t the only one pissed off: lawsuits are starting to roll in from across the globe, including South Korea and the FTC. Qualcomm isn’t going down easy though, and has refused to pay Apple the $1 billion in payments it owes. Petty or warranted? We’ll find out soon.

AT&T is Upping the Ante

…For companies trying to get in on the cord cutting action. In November, AT&T (+1.10%) launched DirecTV Now (remember, AT&T owns DirecTV). It’s a streaming service intended to give cord cutters the cable channels they miss (with the added bonus of boosting DirecTV’s lagging business). Despite getting off to a glitchy start, AT&T announced over the weekend that the service reeled in an impressive 200,000 subscribers during its first month. Not too shabby. At prices as low as $35 a month, we can see why people were eager to subscribe. But now that the service has its feet under it, the teaser prices are gone, and it’ll now cost you a pretty penny to subscribe—$60, to be exact. We’ll have to wait and see if a higher price hurts growth, but for now, AT&T is hot on the heels of Netflix and Hulu.

Less is More for P&G

..Whose weight loss paid off quite handsomely. The consumer goods giant beat earnings expectations on Friday, reporting better-than-expected sales of $16.85 billion and raising its 2017 organic sales forecast. By the way, organic sales have nothing to with organic food (unless you’re Whole Foods). It means sales excluding the effect of foreign exchange (currency) and mergers/acquisitions. This is especially important to P&G (+3.26%) for two reasons. Uno: over half its sales come from outside the U.S, and dos (the big one): it recently completed the $12.5 billion sale of 41 of its brands to Coty (+2.26%). The shedding of these 41 generally unprofitable brands has refocused P&G on its core brands, like Tide and Gillette. Despite these positive organic sales forecasts, the company actually expects total revenue to decline in 2017 due to currency pressures and further divestitures of brands. These things do take time.

Who Started the Fire?

…Samsung finally finds out. That’s right, South Korean giant Samsung (+0.70%) nabbed the exploding culprit: the battery. It’s true: irregularly sized batteries made by Samsung SDI and Amperex Technology caused the Galaxy Note 7 to overheat and catch fire, sparking a worldwide recall. And that’s not all. After the company’s fiery debacle in 2016, Samsung’s earnings showed an astounding loss of $5 billion. Not fun. Samsung will be instituting a new eight-step quality assurance policy to make sure this doesn’t happen again…and to get regulators off its back. Oh, and let’s not forget to mention the ongoing bribery, perjury and embezzlement allegations against vice chairman Lee Jae-Yong. Keep your head up, Samsung.

Other Stories

Economic Calendar

  • Monday: McDonald’s, Yahoo, Halliburton, LG Earnings
  • Tuesday: Johnson & Johnson, Verizon, Alibaba, 3M, Lockheed Martin, Texas Instruments, Capital One, Kimberly-Clark, Alcoa Earnings; Existing Home Sales; PMI Manufacturing Index
  • Wednesday: AT&T, Qualcomm, Boeing Earnings
  • Thursday: Alphabet, Microsoft, Intel, Comcast, Unilever, Starbucks, Caterpillar, PayPal, Ford, Southwest Airlines, Fiat Chrysler, JetBlue Earnings; New Home Sales; Weekly Jobless Claims
  • Friday: Chevron, Honeywell, American Airlines Earnings; Durable Goods Orders; U.S. Q4 GDP (1st Estimate), Durable Goods Orders, Consumer Sentiment

Obama’s Economy

Despite the nice post-election surge, today is the first official stock market trading session of the Trump presidency. Obama’s success as president will be debated for decades, but one thing is pretty certain: the Obama stock market was phenomenal. Investors are hoping the streak continues into the Trump presidency. Here’s to the last eight years:

  • The S&P 500 rose 235% in Obama’s eight years in office, which equates to an annualized return (including dividends) of 16.3%. That’s the second highest of any modern presidency, only behind Bill Clinton.
  • The superstar sector of his presidency was the consumer discretionary sector (think non-essential goods) with a total return of 338%, or 20% annualized.
  • The worst-performing sector was energy, which still managed a 53% return. First Solar was sadly left out of the party, performing the worst of any S&P 500 stock during the Obama presidency. The solar panel company fell by 74% in the past eight years.
  • The real MVP of Obama’s time in office? Ulta Salon. The beauty store chain rose 4,350% since 2009. So one final time: thanks, Obama.

Interview Question of the Day

What’s the effect of a fiscal deficit on the economy? (Answer)

Business Person of the Day

The best way to learn from the best? Hire from the best. Uber has poached another Google exec mere moments after hiring ex-Googler Amit Singhal last Thursday. This time, Kevin Thompson, who served as Google’s VP of Engineering for YouTube’s ads team, will be joining the ride hailing company as its new VP of Marketplace Engineering. Singhal and Thompson spent a collective 27 years at Google—and Uber hopes they’ll bring their secrets to success with them.

Food for Thought

What a great time to set up investment firms! China has set up a $14.6 billion fund to support investment in the internet sector. The fund is backed by the Chinese cabinet and is part of the 1,200,000,000,000 yuan (that’s 1.2 trillion) committed to develop China’s internet technology. That’s a lot of yuans and zeros. (Sorry, we couldn’t resist.)


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