Samsung's Foldable Phone Isn’t as Robust as Advertised

If you're a tech company that wants to debut a smartphone with a revolutionary new feature, the one thing you don't want your early reviewers to tell the world is that the aforementioned feature rapidly broke their devices. That's probably doubly true when it's a feature that makes anyone hearing about it for the first time think, "Wow! How the heck can they build a phone that does that without the phone breaking in the first month?"
Answer: They can't, quite. At least, not this week. Samsung has canceled the event to unveil its foldable-screen smartphone -- the Galaxy Fold -- that was scheduled for this Wednesday. And sales are postponed until the company can address its problems: Some high-profile reviewers said the flexible 7.3-inch screens were breaking at the hinge or blacking out.

In this MarketFoolery podcast, host Chris Hill and senior analyst Seth Jayson talk about the future of foldable phones, what these troubles mean for Samsung and its $2,000 device, and whether a big rival could soon do it better. They also answer a listener question that cuts right to the heart of The Motley Fool's investing philosophy: If you really like the long-term prospects of a company with a high stock valuation, should you ignore the naysayers talking about a share price bubble and invest, or wait for a better entry point? And with earnings season about to heat up, they talk about which companies and sectors Jayson will be watching in the coming weeks. 

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. A full transcript follows the video.

This video was recorded on April 22, 2019.

Chris Hill: It's Monday, April 22. Welcome to MarketFoolery! I'm Chris Hill. Joining me in studio today, Seth Jayson. Thanks for being here!

Seth Jayson: This is fun! I'm glad!

Hill: We're back! We took a couple of days off last week. 

Jayson: We all had some time off. 

Hill: Spring break. 

Jayson: Did some hiking. 

Hill: We did some hiking. I was in New Mexico. New Mexico was fantastic! Everyone should go there. 

Jayson: I was in New York, so it was the opposite experience. But it was also fantastic, and everyone should go there. 

Hill: I think everybody already is in New York City. 

Jayson: That's true. And they were all taking selfies the entire time. To watch people try to smile -- do you know the scene in How to Train Your Dragon where the dragon smiles like a dog? Teaches himself how to smile? That's everybody trying to get a selfie. 

Hill: [laughs] We're going to dip into the Fool mailbag. We have to start with the big tech news of the day. This requires a little bit of background. On Wednesday, Samsung was planning an event in Shanghai to unveil its new Galaxy Fold smartphone. The Fold means what you think it means. This is the foldable display phone. That was going to be on Wednesday. It was going to be on sale on Friday. Today, Samsung announced it is postponing the event. The company actually didn't say why they were postponing it. But I think for anyone who has seen the early reviews -- because of course, Samsung, like any consumer tech company, got the product out early to some tech reviewers --

Jayson: To the "influencers," everyone envision my air quotes, "influencers." They're what we used to call tech reviewers. 

Hill: Joanna Stern, for one, at the Wall Street Journal, did a very entertaining and illuminating video. The reviewers... it didn't go well. So they are postponing this event and the launch of this phone, and it seems like for really good reasons.

Jayson: It did, and it didn't. The Verge had a great long video and the reviewer said his phone broke, the screen broke on his. The scandal is that the screen is breaking, which is something, as a guy who builds things for a living, I was like, "You're going to try to make a screen fold?" You take a piece of leather, a piece of nylon webbing, and you fold it enough times, it starts to get broken.

Hill: It's going to wear out. 

Jayson: I don't know how you can build a screen that won't. They must think they have. Unfortunately, there's four high-visibility reviewers whose phones broke. Two of them, as far as I know, peeled off this protective layer you're not supposed to peel off. It's an anti-scratch layer. The screen itself is plastic, not glass, I guess. And in doing so, they probably busted up the electronics underneath it, and it went bad. But others didn't peel that off, and it still went bad. There are a few of these units, a handful. But of course, on the Twitter, that equates to everything. It's a big problem because everybody's worried, especially because it's a $2,000 phone.

That said, the guy at The Verge actually said, "I really like this, even though there's a whole bunch of stuff I don't like." He said he really liked the unit anyway because ... there were various reasons. It's worth going through. Casey Neistat, he's a YouTube guy, does drones and phones and stuff. He really kind of liked it, too. Looking at it, I was expecting to scoff. I'm a scoffer.

Hill: You are. 

Jayson: I'm a scoffer. But I think when the tech is better, and if they can get the screens not to break, it will actually take a lot of the tablet market. People are carrying on tablets and phones because they're really two different use cases. If you can get that screen a little bit bigger, you probably don't need the tablet. Everybody said there's a visible crease, but you don't really care about that after a while. The crease isn't worn, it's just there, and it's probably always going to be there. 

My prediction: Apple does a little bit better job with this in the near future, and it becomes the thing. Which would probably kill a lot of the iPad sales. But maybe tablets deserve to die. Maybe we just need phones that have foldable screens. 

Hill: Yeah, it really does seem like Samsung is on to something here. They are absolutely not there yet. As you said, they're asking people to pay $2,000 for this thing. 

Jayson: And it's the thickness of two phones plus a little air space when it's folded. It's a big chunk. It weighs twice as much as a phone. It is not there yet. But I think they will get there.

Hill: But to your point of what it might do to the tablet market, if you look at this and say to yourself, "Well, I was thinking about buying a new phone and a new tablet," if you're buying top of the line, that gets you somewhere in the neighborhood of $1,500, $1,700. So you can justify $2,000. But only if it works. You really have to be confident that this is going to work.

Jayson: I think they're going to have to come out with a big splash. A big deal. Like, "We'll replace these things if they wear out." They said it was good for, I don't know how many hundred thousand openings and closings, which is only like five years at 100 openings a day. People are going to do more than that. I'm astounded that they thought they could release this. Again, as a guy who builds things like bicycles and worries about things bending a little bit over and over again and eventually breaking, it's astounding to me that you could build a flexible screen that would work at all, that you could open 10 times and it wouldn't break.

Hill: And a little bit of this, and only a little bit of this, for Samsung is a communications problem. As you said, they've got this protective layer on top that people naturally started to peel off because if you buy any other device from Samsung or Apple, they usually come with this very thin layer of plastic that's protective and you peel it off. They didn't go out of their way to tell the reviewers, "Oh, by the way, this thing that we know you're used to pulling off, don't touch it."

Jayson: It should have been clear because it was really hard to pull off. Some of the reviewers said, "I started pulling on this and then it became clear this was a no-no." But the screen itself being plastic and flexible, there are going to be people who won't like it because it is going to get dinged, and those dings are not going to go away. That's going to be something that some people will not be able to get over, especially for $2,000. 

Hill: It'll be an interesting thing to watch, not just how Samsung retools this, reboots it, and eventually launches it, but also to see the response from Apple. I think you're right. If the Apple folks weren't already working on this, they probably are now.

Jayson: I think if someone gets this more reliable, thins the sides down, there's a very good use case for it in the future. And then the prices, of course, will drop like crazy. I bought a TV for $300 a month ago or something, and it's the size of my wall. I remember when those didn't exist, and then I remember when they were $2,000. Now, they're cheaper than your phone. They're cheaper than a phone at Cricket. That's what happens.

Hill: Not that we're picking on Cricket. 

Jayson: No, that's what I've got. I'm a cheapskate. I think my phone costs more than my TV. 

Hill: [laughs] Our email address is [email protected]. Question from Scott Sir-Sira---

Jayson: Sorry, Scott!

Hill: Sorry, Scott! Totally blew your last name.

Jayson: Scott with a last name that we're not smart enough to say.

Hill: Scott Siracusano. Third time's a charm.

Jayson: Is it Italian?

Hill: Seems to be.

Jayson: Is the first letter C, with an I after it?

Hill: No, it's an S-I-R. Let's get to the question. Scott writes, "I'm 25 and very new to the investing world and have it felt somewhat lost in which direction I want to take my portfolio." Let me just pause right there and say, hey, that's just great, that you're 25 and starting your investing journey. So kudos to you!

Jayson: Start with some index funds. 

Hill: "There's a specific stock, Twilio, that has a very high valuation, and I hear words of a bubble popping. However, I like the idea of a new company showing a lot of strength and taking people by surprise. They have a very strong outlook and their potential for growth with their super network gives me a positive outlook despite all of the bears. Even if a stock is considered overvalued, is it still worth investing in if you see long-term growth with the risk of a significant pullback? Or, should I wait/ hope for another dip and buy in on that? I don't want to miss the train, but I also don't want to make an impulsive purchase. Any help would be appreciated. Keep doing amazing things, guys." Thank you! Thank you, Scott! Great question!

Jayson: 25?

Hill: Yes.

Jayson: That sounds a lot smarter and wiser than 25, recognizing that the impulse to get on the train is really dangerous. I own this stock, despite those high-looking valuations. A lot of this depends on how much money you've got, how much money you're willing to put in, where the rest of your money is. What's your risk tolerance? What's your time line? I believe that if you are looking for high-growth companies like this, and you can tolerate some major ups and downs, I don't think this is the kind of a stock that becomes a zero at any point. But I definitely think it'll fly around. We're trading at like 15 times revenues or something right now. This stock is going to be a wild ride.

I own it because the more I looked into it -- and I'm not an expert -- the more it looked like a mini, next generation AT&T, if you will. They made things so easy for developers. That's how their technology is being embedded in so many other platforms. They're becoming a default, the Google, if you will, the Kleenex, if you will, something along those lines. To me, that's very powerful. Companies like that, if you have the risk tolerance and the capital, I think are always worth owning a little bit of. 

As for waiting for a dip, I have learned over the years not to do that. I have waited for dips on Netflix, waited for dips on Amazon when they didn't come, then I forgot to buy a 15 times smaller valuation than it is now. If you like what a company is doing, and you have the risk tolerance, buy a little then watch. That's what I tell everybody. That's what I do myself. I can't give individual individual advice. But that, I think, is a good strategy. 

Hill: Along those lines of waiting for a dip, I have also learned over time, through painful experience, not that painful, but painful enough, that I never want to fall in love with a price. Anytime in the past when I have been quote-unquote "waiting for a dip," I have put a price tag on what I think that dip should be. I've been in the situation where, "The price has fallen, but it hasn't fallen to where I think I should buy it." And then it ends up rising and never stops rising and I missed the boat. 

Jayson: I recently started owning more stocks. I think I own more than 60 stocks now. That works for me. One thing I like about it, I've always got something doing well. If I've got something in the crapper, as we say, it doesn't bug me that much because I've got so many other stocks. A lot of this will depend on your overall strategy. This is a small portion of my portfolio, as all of them have to be when I own that many. I just find that that works for me. 

Hill: And he's 25 years old. 

​Jayson:​ You've got some time.

Hill: He's got 70 years. 

Jayson: Don't bet it all now. The most important decision you can make is getting into the right frame of mind, putting that money away every month. One thing I do is, about half of my retirement stuff still goes into index funds every month. That way, you're saved from a lot of stupid mistakes because it's on autopilot. 

Hill: Earnings season really heats up this week. I'm curious whether it's one of the 60 stocks in your portfolio, or just an industry, I'm curious what you're going to be watching this earnings season. 

Jayson: I'm looking mostly at consumer-facing companies to see what the state of the consumer is. Sometimes I wonder if everyone isn't all stuffed out. Does everyone have enough stuff? I feel like I've got enough stuff. I hope it's just me for the sake of my stocks. I'm interested in that. I'm interested in seeing what happens to earnings as we lap these tax cuts that buoyed corporate earnings last year. We were walking down the street in New York, we walked into Lululemon (LULU 1.00%). That's a high-price-looking stock, but doing amazing things, still selling a lot of product and margins are getting better. So I stopped in and I felt the material, as they say on Seinfeld. It was sort of easy to see why the gross margins, the merchandise margins, are holding up well, or even getting better. You could see that they were using these really lightweight fabrics, where instead of being sewn, they were folded over and fused. That might sound like a cheaper way of doing it, and I suspect it probably is in terms of price, but it also makes the fabric lighter. It makes it less likely to chafe, which is something Chris and I know a lot about. We'd probably pay a lot of money for less chafing. I looked at this stuff and I could see why the margins were getting better. Right there. So, once in a while, going to the store is more than just fandom. You can actually learn what's going on behind the numbers. So I'm interested to see what happens at Lulu and see if they can continue with that trajectory. 

Hill: Next Sunday is the GW Parkway classic 10-mile.

Jayson: You won't even begin to chafe. Not you, marathoner.

Hill: I don't know. The weather's looking pretty warm. I just have to be prepared. 

Jayson: Unfortunately, you have to wear the tight stuff. Tight stuff chafes less. Bad for everybody on the sidelines, but it's good for you.

Hill: [laughs] I don't think anyone on the sidelines is necessarily watching me, so that's fine. I'll just chug along. Thanks for being here!

Jayson: You're welcome!

Hill: As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. That's going to do it for this edition of MarketFoolery! The show is mixed by Dan Boyd. I'm Chris Hill. Thanks for listening! We'll see you tomorrow!