Sorry Apple, Consumers Really Do Want Larger Phones

Although Apple's (NASDAQ: AAPL  ) management has consistently argued that its 4-inch iPhone offers the "best" screen, it's increasingly obvious that when it comes to the display, size matters.

Phablets -- oversized smartphones popularized by Samsung (NASDAQOTH: SSNLF  ) -- have finally gone mainstream. According to IDC, more than one out of every five smartphones shipped in the third quarter sported a screen five-inches or larger. The vast majority of these handsets run Google's (NASDAQ: GOOGL  ) Android operating system. While various rumors have indicated that Apple has its own phablet in the works, if the company continues to ignore this increasingly important market segment, it will be at a huge disadvantage.

A "useless" phone
Not to pick on BGR's Jonathan Geller, but his early thoughts on Samsung's original Galaxy Note perfectly embody the skepticism that surrounded the phablet form factor in its early days. Geller, after playing with Samsung's first phablet, wrote:

[Samsung's Galaxy Note] is too big. You will look stupid talking on it, people will laugh at you, and you'll be unhappy if you buy it... You can't use it one-handed, and I can't even type on it easily with two hands... the Galaxy Note feels like a joke.

Some of Geller's observations may be accurate. Certainly, for many consumers (particularly those with smaller hands) Samsung's Galaxy Notes may be difficult to operate. But despite any potential limitations, Samsung has found success with its Notes -- back in September, Samsung said it had sold 40 million Galaxy Notes, not including sales of the recently released Galaxy Note III.

The key to emerging markets
But Samsung's Galaxy Notes are premium devices; even with a contract, the Galaxy Note III costs $299, unsubsidized it's nearly $900. Competing phablets like HTC's One Max and Sony's Xperia Z Ultra also run Google's Android and are equally as expensive.

The phablet's true appeal, however, may lie at the low end. Demand for phablets has exploded in recent months, particularly in emerging markets. In fact, back in September, IDC reported that in Asia (excluding Japan), phablets were outselling both PCs and tablets combined. Intuitively, this makes sense: If you're on a strict budget and cannot afford to purchase multiple computing devices, a phablet offers the best bang for the buck.

Many of these devices are made by Chinese OEMs like Huawei, but virtually all of them run some version of Google's Android operating system. With Apple staying out of the phablet game and Nokia and BlackBerry only recently entering the market, phablet buyers have little choice beyond Google's mobile operating system.

Is an Apple phablet coming in 2014?
Apple's management has promised new products in 2014, one of which could be an iPhone with a larger display. Rumors of a forthcoming Apple phablet have been out there for months, and on Monday, Bloomberg added to the speculation by saying that Apple is preparing to launch a 5.5-inch iPhone in 2014.

Given how big the market for phablets has become, Apple's management would do well to offer a phablet, if for nothing else than to play defense against Google's hardware partners. Still, given Apple's tendency to embrace premium pricing, its phablet might ultimately prove to be less successful than investors expect -- the phablet may be most important in emerging markets.

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Read/Post Comments (22) | Recommend This Article (3)

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 November 16, 2013, at 11:22 AM, slapppy wrote:

    At first blush, until you use it everyday for a year or more. Fumbling daily trying to use one hand comfortably, instead your forced to put down what your carrying stop and then use both hands. Stylus? This is 2013 not 80's. Putting these fat phones in your jeans pocket, or suit looks stupid.

  • Report this Comment On November 16, 2013, at 11:24 AM, John8091 wrote:

    Apple is not sorry that they sold 9 million iPhones in the first weekend of its release. Sounds to me like they played their cards right.

  • Report this Comment On November 16, 2013, at 11:40 AM, larryw101 wrote:

    If you go to Apple's message board on Yahoo, you will I am not the one who feels this way about Motley and Mattera.

    Motley's name is certainly fitting !

  • Report this Comment On November 16, 2013, at 12:32 PM, TMFMattera wrote:

    Thanks for your comments, larryw101. I try to bring a different perspective, and point out interesting trends. There are plenty of positive voices on Apple out there, including right here on Fool.

  • Report this Comment On November 16, 2013, at 2:38 PM, zippero wrote:

    Both Galaxy S4 and Note 3 sales are now sputtering. According to Counterpoint Research, Apple's new iPhones have over 90% of the ultra-premium $500+ phone sales now, which includes the Galaxy Note 3. In Europe, Note 3 sales are sputtering as well with growing unsold inventories. The fact of the matter is that you can't easily use a phablet one-handed while driving a car, which most people want to be able to do. In Asia's subways and buses for low-to-mid income commuters, phablets make perfect economic sense for their tighter budgets. But for upper income Asians who don't want to be caught dead riding a subway and prefer driving their foreign luxury car instead, safe one-handed usability is just as important there as it is here. Owning a BMW or Audi in Beijing or Shanghai is a status symbol, and no one's going to risk crashing their expensive car on account of a stupid phablet for subway riders. iPhone rule for wealthier car-owning Asians.

  • Report this Comment On November 16, 2013, at 2:55 PM, Mega wrote:

    I just bought an iPhone 5s. One of the main reasons I switched from Android is that my carrier doesn't have any high end phones under 4.5". Samsung, Google, etc have given up on competing with Apple on making reasonable size phones.

  • Report this Comment On November 16, 2013, at 2:58 PM, Dube88 wrote:

    I used to get upset when I saw poorly researched articles full of weak and one sided arguments. I thought that I would be the laughing stock at work if I delivered such poor quality and wondered how anyone could keep a job as a writer with so poor business acumen.

    Now I'm happy to see people exposing their weaknesses and short comings publicly because it confuses investors and provide buy opportunities. Imagine investing $50K in Apple after the purchased of a first iPod. Then investing another $25K after the iPhone announcement and another $30K after the iPad launch. Sell everything at $600 and you've got your first million. I'm thankful to all the poorly research articles and writers with poor business acumen for confusing investors and providing buy opportunities. Keep up your mediocre work. Smart investors need you.

  • Report this Comment On November 16, 2013, at 6:42 PM, larryw101 wrote:

    To: TFM MATTERA,

    Your constant bashing of Apple can hardly be characterized as just a different perspective. I truly believe you and other novice authors on Motley are finally being exposed for your extremely slanted and inexperienced journalism writing.

    Further, you have no credentials to speak of. Your profile says nothing about you other than securities you have a position in. Where is Motley's due diligence when allowing authors such as yourself to write these articles? The majority of the time you're incorrect. Remember when you wrote to stay away from Apple when it was down at $385? And you have been bashing it all the way up to it's current price of $525.

    Don't misunderstand me, I respect an opposing view if there is merit to the argument. Many authors who have written bearish articles on Apple have also come back to praise Apple when deserved. That is good journalism. What you write is not. All I have ever read from you is one negative story after the other. Your inexperience speaks for itself.

    I'll say it one last time, Motley Fool use to be a good source for financial advice. But with authors such as yourself, it no longer is. IMO

  • Report this Comment On November 16, 2013, at 8:06 PM, secularinvestor wrote:

    Sorry, but the author's basic assumption that "Consumers Really Do Want Larger Phones" is simply FACTUALLY INCORRECT

    Kantar Research carried out a survey amongst its panel of over 200,000 users and found that ONLY 30% preferred a larger screen.

    That means that 70% preferred an iPhone sized screen.

    This preference is born out by actual sales. In their analysts' earnings call Samsung' admitted that their high end smartphone sales are stagnating. They had a slide showing their aspiration is to ship 100m Galaxy smartphones and Notes in 2013, all of which are larger phones. Whether they will achieve that target is debatable, given the success of the new iPhones and the way they are taking high end market share from Samsung .

    In Apple's FY 2013 they sold over 150m iPhones, sales of which increased around 25% over the previous year. That is before the introduction of the new iPhones which are a smash hit and will almost certainly increase Apple's market share during this holiday quarter, as has happened every December quarter following launch of the new iPhones.

    Data from Kantar Research and others shows that iPhones GAINED market share over the last year in the US, UK, France, Italy, Spain, Canada, Mexico and Japan, while Samsung and Android LOST market share in most of these advanced economy markets, despite their larger format phones.

    Having said that, I do believe that there is a pent up demand for a larger screen iPhone. That will take away Samsung and other competitors only real selling point advantage compared to an iPhone.

    A larger screen iPhones are therefore likely to increase iPhone's high end market share significantly.

  • Report this Comment On November 16, 2013, at 8:20 PM, zippero wrote:

    Samsung's high-end phones, along with the Moto X and HTC One, have hit a wall ever since the 64-bit iPhone 5S came out. With KitKat designed to run on low-spec phones with insufficient RAM to support 64-bit, Apple will stay in the lead for a long time, and Samsung's high end phones will be stuck with 32-bit Android KitKat for the foreseeable future.

  • Report this Comment On November 16, 2013, at 8:55 PM, Jimmyp25 wrote:

    I want a phone, not a tablet at a phone. A family of mine just showed me his new samsung phone. I applauded on how huge the thing is . It looks retarded. Barely fits in his pocket....

  • Report this Comment On November 16, 2013, at 11:15 PM, ScottAtlanta wrote:

    Nice article.

    I know it's hard for Apple Fanbots to listen to the constructive criticism without Lashing out in desperate anger as if you sullied their sacred cow.

    I didn't buy a smart phone b/c they were so small. When the Samsung NOTE came out....I bought. It is perfect for my needs and apparently 10's of millions of others.

    The Mini tells you where things are going...people want that 5 to 7" size....it's convenient and why not have the device do all in one? I'm renovating a house...where's my Note? In my pocket. I've managed with longer thicker things in my pocket, in fact nearly twice as long. So why not a Note?....lol.

  • Report this Comment On November 17, 2013, at 2:34 AM, rcdee wrote:

    Guys with there mothers hands and her pants too! Stop already don't worry apple has been making bigger phones for years and it still hasn't came out. 95% of the features that have been added to the iphone in the last 5 years were copied from android phones.I've owned 5 iphones and still use mac and ipods so no hater here.And the guy bragging about a A7 chip wake up smart phones these days are so fast that you'll never use it. Put that same A7 chip on a bigger screen it will slow down too.

  • Report this Comment On November 17, 2013, at 2:41 AM, tomchicago wrote:

    I ditched my iPhone a few years ago for the Galaxy Note 2 and now have upgraded to Galaxy Note 3. I LOVE LOVE LOVE LOVE IT!!

    I wanted a bigger screen because I want a computer in my palm. Sorry but talking and texting is not my only requirements. I play games, watch videos, movies, youtube.. ALL THE ABOVE!!

    I also love to hold my phone up against the iphone as a way to rub it in their face with JOY!!

  • Report this Comment On November 17, 2013, at 6:39 AM, lkmd98 wrote:

    25% want a larger phone, 75% don't. How about the article that android users are shorter, fatter, less educated and poorer. Im sure apple will make a larger phone, but in their time frame. I love how the media is always telling apple what they should do. The one thing I want to clear up is my iPhone 5s is actually a server computer in my hand but you can phone calls if you wish. What everyone needs to understand is the youth does not use VOICE anymore. They need a handheld communication device, a personal assistant but have no interest in making a phone call ........

  • Report this Comment On November 17, 2013, at 8:07 AM, puppybone69 wrote:

    Everyone bashing the big screen phones sound like jealous little kids who can't afford one. Nobody who buys one cares how you think it looks. We could care less what Apple does or doesn't do either. We have no problems using our phones one handed, even when not in one handed mode. (Yeah, they have that too, so your one handed complaints are all moot!) Nor do we care what you think of the stylus. What we do care about is watching videos and movies in full 1080p HD on a 5-6 inch screen, and playing games on it too. Big surprise games look better and play better on a bigger screen, hence we tend to do better at them than we did when we were playing them on a 4 inch screen. In closing, no one on a phablet looks anywhere near as retarded as someone holding up and ipad with both hands to take a pic of something!

  • Report this Comment On November 17, 2013, at 9:56 AM, windwoodtrader wrote:

    Had the Galaxy S4 for two weeks and found it clumsy and with a screen that didn't utilize space well and difficult in bright light. Battery life really awful.

    Took it back and got an iPhone 5. Now a happy camper.

  • Report this Comment On November 17, 2013, at 9:15 PM, rzrpz7 wrote:

    I have had a Iphone back when they first came out and apple was top shelf at that time. But now they are lagging in the Phone technology. I switched to Note 3 and love it 13 mp camera, large screen to watch videos, run two windows at once, and super fast oh the battery life is the best on any phone I have ever had.

  • Report this Comment On November 17, 2013, at 9:18 PM, rzrpz7 wrote:

    Guess I am one of the 25% because I love the Note 3. I can't see what I am doing on the smaller phones. why buy a tablet and a phone when I can have both in one.

  • Report this Comment On November 17, 2013, at 9:37 PM, electriceel wrote:

    @ zippero:

    A brick wall? Hardly. How many phones do you know of that have 4g or more RAM (when 64-bit OS become relevant)? None, because they don't exist yet. Sure, in a few years, they probably will show up on the market, but that gives Google plenty of time to develop a 64-bit version. Currently, the 64-bit thing is little more than a marketing gimmick.

  • Report this Comment On November 17, 2013, at 11:52 PM, rustyjaguar wrote:

    Iphones now a days look small. Iphones are a bit backward. That whole 64 bit thins is just a gimmick. Anybody here old enough remember the Nintendo 64? Yea 64 bit system that got trumped by a 32 bit system. Anyone care to guess that system?

    My buddy has an Iphone 5S and so does my coworker. However after seeing my HTC One he is ready to jump ship. The screen looks sharper, it has more memory and the two speakers at the front look much better then the paper cup my other coworker with an Iphone uses to amplify the volume.

    To be honest though I got to give props to Apple for their designs. The HTC One looks like a bigger improved Iphone. I think HTC out appled Apple.

    Sure the haters are going to point to the low numbers of Ones being sold by HTC. But's basically because Apple has much more robust marketing and marketing skills and rely on pure ignorance to the masses to push their stuff.

  • Report this Comment On November 18, 2013, at 7:31 AM, jdmeck wrote:

    No they do not. They want larger devices to look at media. Very few people actually want a phone that is bulky in their pocket. Ever see where women without a pocket book put their phones?

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