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Apple Inc. (AAPL), Microsoft Corporation (MSFT): Survival of the Biggest Phablet

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Product cannibalization is a normal part of the tech world, and if the latest research from IDC proves true, then smaller tablets are the latest on the dinner menu.

Survival of the biggest
The latest research from IDC shows that phablet smartphones — you know, the ones with 5-inch screen sizes and even larger — are outpacing small tablet shipments. In the Asia Pacific region excluding Japan, tech companies shipped more than 25.2 million phablets in the second quarter, compared with 12.6 million tablets – an increase of 620% year over year. But it’s not just the Asia Pacific region that’s experiencing the trend toward larger smartphones. The IDC expects phablets to start cutting into sales of smaller tablets over the next year.

That doesn’t mean small tablets are doomed, but rather that the huge growth we’ve been seeing from the tablet market may take a bit of a hit as phablets encroach on the market.

Samsung Galaxy Mega 6.3. Source: Samsung.

So what does that mean for top tablet vendors such as Apple Inc. (NASDAQ:AAPL) and Samsung?

For Samsung, maybe not much. The company is already knee-deep in the phablet market and shows no sign of changing course right now. Samsung just recently released the large Galaxy Mega 6.3 and the the Galaxy Note 3, and so far consumers have been pleased with the company’s assortment of sizes. While the large smartphones may eat into some of its tablet sales, the company is well diversified within both segments and still holds a growing No. 2 tablet vendor spot.

Meanwhile, Apple Inc. (NASDAQ:AAPL) just launched two new phones, the 5c and 5s, but stuck to its guns and still only offers a 4-inch diagonal display. While there have been reports that the company is testing phones up to 6 inches, the earliest we’d see a larger phone from Apple would be a year from now, if then.

Apple iPhone 5c. Source: Apple.

If Apple Inc. (NASDAQ:AAPL) doesn’t release a larger phone, the company’s dilemma could be twofold. First, Apple could be losing smartphone sales to Samsung and others because it lacks a larger phone offering. Samsung’s phones range from 5 inches up to 6.3 inches — while Apple offers only the 3.5-inch iPhone 4s or the 4-inch 5c and 5s. If the phablet trend continues, which IDC seems to think it will, then Apple may already be a step behind the competition.

Second, consumers may start choosing Android phablets over Apple Inc. (NASDAQ:AAPL)’s iPad Mini. Right now, Apple is the world’s largest tablet vendor by shipments, but Apple could lose some ground as large smartphones eat into future tablet growth. Apple’s tablet crown has taken a bit of a beating compared to Android’s growing market share, and phablets are only adding more competition. A refreshed iPad Mini in October may help Apple push back the larger phones, but it’s no guarantee.

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