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Apple Inc. (AAPL): The Rise of the Phablets!

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It’s clear to anyone following the mobile industry that the ideal mobile handset size has steadily increased since the launch of Apple Inc. (NASDAQ:AAPL)’s iPhone in 2007. Prior to the iPhone’s arrival, leading handset makers such as Nokia Corporation (ADR) (NYSE:NOK), Motorola and Sony Corporation (ADR) (NYSE:SNE) prided themselves on making smaller, slimmer feature phones that could easily be carried in a pocket.

Apple Inc. (AAPL)

Today, smartphone manufacturers are creating larger and larger devices, thanks to full touch screen displays and more sophisticated apps that require larger screen sizes. Whereas the original iPhone had a 3.5-inch screen, the current generation iPhone 5 has a 4-inch one, while its primary rival, Samsung’s Galaxy S4, boasts a massive 5-inch display. In October 2011, Samsung blurred the lines between smartphones and tablets with its 5.3-inch Galaxy Note, which ushered in an era of “phablets,” despite doubts that the form factor could gain traction.

Considering the success of Samsung’s Galaxy Note series, many analysts are now wondering if Apple Inc. (NASDAQ:AAPL), which is dogged by concerns regarding its aging product line, is planning to release a phablet of its own. Let’s take a look at the evolution of smartphones, tablets and phablets to better understand if these comically large phones are merely a fad or the start of a permanent trend in mobile phones.

How did we get here?

When Steve Jobs released the original iPad in 2010, many industry watchers didn’t know what to make of it. Some believed that it was an unnecessary device for households that already had desktops, laptops and smartphones. Others believed that it was doomed to fail, just like the industry’s previous efforts to introduce tablet computers.

What many people failed to grasp was the concept of the “shared DNA” of the iPhone and the iPad. Jobs knew that based on the popularity of the iPhone, the iPad could succeed. He noticed that many iPhone users wanted the iOS experience on a larger screen. Therefore, instead of porting over a PC experience to the tablet, as Microsoft Corporation (NASDAQ:MSFT) had clumsily attempted in the past, it brought the smartphone experience to a larger screen.

What Samsung realized was that as more people used tablets, the more they found the two devices to be redundant. When users can download the same apps to the smartphone and tablet, the latter usually provides a more pleasant experience on its larger screen. However, users still needed to return to their smartphones to make a regular call or send traditional SMS messages. Out of that idea, the Galaxy Note was born.

By the end of 2012, Samsung had shipped over 10 million Galaxy Note units, sending its competitors scrambling to release their own phablets. Analysts at Barclays now estimate that the phablet market, currently defined as smartphones with screens larger than 5 inches, will grow 70% annually over the next three years, becoming a $135 billion market by the end of 2015. Total annual shipments are forecast to rise from 142 million units in 2013 to 402 million by 2015 – triple the number of iPhones sold in 2012.

Where do we go from here?

Today, there are two kinds of companies – those that completely embrace the phablet revolution, like Samsung, and those that shy away from it, like Apple Inc. (NASDAQ:AAPL).

China’s Huawei, one of the country’s largest Android handset manufacturers, has embraced Samsung’s philosophy to the extreme. The company recently introduced the MediaPad 7 Vogue, a 7-inch tablet that can also be used as a smartphone. The Android device features a 1025×600 IPS LCD touchscreen with a 1.2 GHz quad-core Cortex-A9 processor, in an aluminum unibody case. It has all the bells and whistles of a higher-end Android tablet. Although many people have mocked the MediaPad’s form factor as “absurd,” there could be a market for these “tablet phones,” since they can be used with Bluetooth headphones instead of being held up to the ear.

Nokia Corporation (ADR) (NYSE:NOK) has shown its preference for larger screens, as seen with its Lumia devices, but it has yet to create a phablet. However, recent rumors suggest that its upcoming Nokia EOS, most often noted for its 41-megapixel camera, will actually be a 5.3-inch phablet. Producing larger phablets would complement Nokia Corporation (ADR) (NYSE:NOK)’s current strategy of adding higher-end cameras to its smartphones, which the company considers to be its niche strength. Nokia is also rumored to be introducing a tablet by September, which could round out a more complete product line of Windows Phone 8 smartphones, phablets and tablets.

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