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Are Phablets Killing Small Tablet Growth?

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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 (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 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 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'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.

Apple's obviously not the only one that needs to figure out its strategy. Microsoft  (NASDAQ: MSFT  ) doesn't currently offer a smaller version of its Surface tablet, and for now that may be a good thing. Sales of the Surface have been dismal, and the company is about to release the next iteration, called the Surface 2. Even with updated specs, Microsoft is facing an uphill tablet battle. The Redmond, Wash.-based company has only 4.5% OS tablet market share right now. Adding a smaller screen would only bring in additional competition for the tablets, something Microsoft can't handle right now.

Tech investors should keep an eye on how much phablets start creeping into future small tablet sales, and take note on how Apple and others respond. The iMaker moves very conservatively when it comes to smartphone screen size, but with larger screens now the new normal, it may be forced to follow the pack. On top of that, I'd watch to see how Apple prices the next version of the Mini. A cheaper Mini may help initial tablet sales but would also move the device closer to its phablet competitors. With a larger iPhone nowhere near a launch, the company is leaving a size-gap open that its competitors are gladly filling.

There are many other factors affecting Apple other than phablets, though. For Apple's stock to soar, a few critical things need to fall into place. In The Motley Fool's special free report "5 Secrets to Apple's Future," we outline the key factors every Apple investor needs to watch. Just click here now for your free report.

Read/Post Comments (9) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 15, 2013, at 6:55 PM, normgarry wrote:

    The bottom line: the carriers are RIPPING US OFF BY DISALLOWING TETHERING. There is no good reason I should have to pay 20 or $30 per month to tether my phone to my tablet. This is the reason why the Galaxy note is able to survive. It's a freakishly large phone that has a battery life like a tablet with built-in cellular modem. That's the reason why Apple will not make a bigger screen phone- They don't want the bigger iPhone cutting into the iPad mini sales. If they were smart they would have made a 5S with a larger screen and launched the 5C alongside it as an option for people who want small phones.

    Unfortunately the Smart guy in the room is dead!

  • Report this Comment On September 15, 2013, at 7:09 PM, daveshouston wrote:

    Almost everybody hates the carriers. They're extortionists. They want to charge you for every device you own even though they know you can only use one of them at a time.

    I should have a single carrier account and be able to use any and all of my devices on the cellular network without paying extra. This means my tablet, my phone, or my laptop.

    That's why Phablets are gaining traction. It isn't because they're a good device to own. It's because it is a 'tweener' between a phone and a tablet. You can get by with just one cellular account and just one device. It's about the money, not the quality or attractiveness of the device itself.

    Apple is all about quality and the best possible user experience. That's why it is hard for them to cave in and ship a device that they don't think provides a great experience.

  • Report this Comment On September 15, 2013, at 7:26 PM, Cuftbll wrote:

    I know one thing that phablets are killing. The state of coolness. Good grief people look like idiots talking on those.

  • Report this Comment On September 15, 2013, at 7:41 PM, crash3085 wrote:

    Actually, they could be hurting the larger tablet sales too. I quit using my 10" tablet once I got the Galaxy Note 2. The Note 2 is faster, more functional, and has a longer lasting battery. And it just makes more sense to carry one device instead of two. The tablet really serves no purpose anymore and If I need something more powerful than the Note 2 then I bring my ultrabook along.

  • Report this Comment On September 15, 2013, at 7:50 PM, drjekelmrhyde1 wrote:

    Microsoft just brought Nokia who is making a phablet as we speak

  • Report this Comment On September 15, 2013, at 9:11 PM, IonyxSephira wrote:

    Um no to nearly all of this.

  • Report this Comment On September 15, 2013, at 9:12 PM, IonyxSephira wrote:

    Phablets are a fad. Trust me.

  • Report this Comment On September 15, 2013, at 10:30 PM, ChrisCarlton10k wrote:

    A new series of tablets to launch this week use Intel's powerful new Clover Trail processor-- which offers impressive performance for a mid-range tablet that outperforms many tablets with quad core processors-- Ramos Technology is one of the better known China based Android tablet manufacturers and has partnered with Intel to introduce the I-Series with 8", 9", 10" and 12" models -- with very competitive pricing starting at $199 with great features, including high resolution HD displays and GPS.

    Intel's new processor with Hyper-Threading technology runs four threads simultaneously and outscores many mainstream quad-core tablets in benchmark testing.

    The i8 model($199) is the most compact model and offers innovation and stunning design with the world's thinnest 8" display - and features a 7.9-inch HD screen - similar in size to the Mini iPad - and almost as compact and easy to carry as a 7" tablet, but with 40% more screen space which makes viewing tablet content much easier - and matches most features of the new Nexus 7 -- including GPS - plus MicroSD storage.

    One of the first sources to provide full details on the entire new Ramos i-Series of tablets is --Tab l e t Sp r i nt--

  • Report this Comment On September 16, 2013, at 11:44 AM, proplayer44 wrote:

    "On September 15, 2013, at 9:12 PM, IonyxSephira wrote:

    Phablets are a fad. Trust me."

    On what esteemed credentials should we trust you? They are so not a fad. I have the Note 2. Will never use a small phone or large tablet again. 5 to 6 inches is perfect in every way.

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