New phablets from Apple, Samsung could revive mobile market

Aaron Pressman Yahoo Finance
Samsung President Lee presents the new phablet Galaxy Note 4 at the Unpacked 2014 Episode 2 event ahead of the IFA Electronics show in Berlin

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Samsung President DJ Lee presents the new phablet Galaxy Note 4 at the Unpacked 2014 Episode 2 event ahead of the IFA Electronics show in Berlin, September 3, 2014. REUTERS/Hannibal Hanschke (GERMANY - Tags: BUSINESS SOCIETY SCIENCE TECHNOLOGY TPX IMAGES OF THE DAY)

Forget tablets, suddenly it’s phablets that are going to save the mobile industry.

Yes, those oversized phones slash miniature tablets with screens measuring 5.5 to less than 7 inches – the kind Samsung (005930.KS) has been selling by the boatload for the past couple of years and Apple (AAPL) is about to horn in on, at least according to highly credible rumors.

And just as tablet sales have slowed to a crawl, phablet sales are increasing fast enough to fill the gap. They may, in fact, be displacing sales of tablets.

Market watchers at International Data Corp estimate 175 million phablets will be shipped this year, versus 233 million tablets and 1.1 billion smartphones. But looking forward, they expect phablet sales to increase at a compound average growth rate of 60% for the next five years, versus 6% for smartphones and 7% for tablets. Don’t even mention laptops and desktops, with sales projected to shrink an average of 1% and 2%, respectively, per year.

Tough to predict

It’s tough to put too much trust in five-year forecasts for an industry facing as much change and upheaval as the mobile-device market. Back in 2009, who would have predicted Blackberry (BBRY) and Nokia’s (MSFT) minuscule market shares today? Or that the iPad would arrive on the scene in 2010 and zoom to more than 200 million sold in four years?

And, of course, not everyone has been a fan of the phablet model, with some consumers and reviewers noting its clunkiness, particularly when it comes to holding such a large device to your ear to make a call.

IDC is aware of the forecasting challenge, and hedged appropriately. "What works well today could very well shift tomorrow as phones gain larger screens, tablets become more powerful replacements for PCs, and even smartwatch screens join the fray,” Tom Mainelli, program vice president at IDC, said in the release.

Samsung’s newest entries, unveiled this week in a three-city, simultaneous press conference extravaganza, should keep the company’s sales on track for now, but they still depend on Google's (GOOGL) Android software and are not likely to change the game much. Luckily for Samsung, phablet sales are still growing fast enough to mask any weakness as Apple’s new phat iPhones, as well as a crop of cheap Asian models, hit the market.

The updated Galaxy Note 4 with a 5.7-inch screen dumps the cheap plastic of prior models for a sexier and more Apple-like metal frame and includes an even higher resolution screen and camera. Analysts mostly yawned, although the higher-end Note Edge, with a screen that wraps around the edge of the frame providing additional space for notifications and such, drew impressed early chatter.

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Business Insider/Lisa Eadicicco The Galaxy Note Edge Samsung has been showing off its flexible display technology for years, but now we’re actually ...

Business Insider/Lisa Eadicicco The Galaxy Note Edge Samsung has been showing off its flexible display technology …

Even as Samsung struggled to lift its smartphone sales with the underwhelming Galaxy S5, phablets have been a refuge from Apple at the pricey end of the market and Asian competitors such as Huawei and Lenovo (0992.HK) at the low end.

“Samsung has been very careful this time around to make sure that the design language communicates that these are premium devices,” says Ken Hyers, an analyst at Strategy Analytics. “The new Notes are preemptive strikes against Apple’s new iPhone and, I think, will be very successful.”

Still, Apple has legions of loyal fans and the ability to extend its already popular iTunes app and media ecosystem into the phablet sector.

The rumored 5.5-inch iPhone could cannibalize sales of some of Apple’s own iPad mini, but that wouldn’t displease CEO Tim Cook. The phone likely carries a much higher retail price and profit margin than the mini.

The downside could be that customers who formerly bought both an iPhone and iPad might decide the iPhone Phatty meets all of their needs. And that would most certainly not please Mr. Cook & company.

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