The growing phablet trend in certain parts of the world shows no signs of abating any time soon, and that's something that Apple (NASDAQ:AAPL) can't ignore forever. On the domestic front, the iPhone maker has just recently become the No. 1 smartphone vendor in the fourth quarter with 34% of the market, according to recent estimates by Strategy Analytics.
Samsung came in a close second for the quarter at 32.3%, though the South Korean conglomerate came out on top for the full-year 2012. Much of Samsung's success here and abroad has been linked to its broad product portfolio, offering every imaginable configuration of screen sizes to cater to a wide range of markets, including supersized phones that are now lovingly known as phablets.
Apple's recent iPhone 5 was the first time the company increased the display size, but it still remains notably smaller than Samsung's Galaxy S III and Galaxy Note II devices. Is Apple wrong?
What comes down must go up
It seems inevitable that Apple will soon expand the iPhone lineup into a full-fledged family affair, and I expect the company to eventually expand both downmarket with a lower-cost model as well as upmarket with a larger-display model. The real question is when (not if) will Apple make these important moves to reinvigorate iPhone growth?
KGI Securities analyst Ming-Chi Kuo thinks the lower-cost iPhone is coming this year alongside the iPhone 5S. The lower-cost model will likely be made out of polycarbonate and come with six different color choices. Instead of using an older display, Kuo thinks it will carry the same 4-inch Retina display as the flagship.
Taiwan-based Kuo has an impeccable track record with accuracy when it comes to Apple rumblings, so a lower-cost iPhone seems like it's in the cards for a 2013 launch. What about the bigger model?
The next big thing
Since Apple just transitioned to 4-inch displays, it seems like it might be a little while before it adds another display size to its arsenal. Tim Cook's comments on the most recent conference call also seem to reinforce the idea that Apple will stick to its guns for a while:
The iPhone 5 offers as you know a new 4-inch Retina display, which is the most advanced display in the industry and no one comes close to matching the level of quality as the Retina display. It also provides a larger screen size for iPhone customers without sacrificing the one headed ease-of-use that our customers love. So, we put a lot of thinking into screen size and believe we've picked the right one.
Apple continues to emphasize the one-handed usage model, but it's probably the only major smartphone vendor to not offer larger models now.
Both Nokia (NYSE:NOK) and BlackBerry (NYSE:BB) are pinning their turnarounds on new models that feature larger displays. Nokia's Lumia 920 carries a 4.5-inch display and BlackBerry's Z10 features a 4.2-inch screen. Nokia's Lumia family had a healthy holiday quarter with 4.4 million units sold and the Z10 is seeing strong initial interest in the U.K. and Canada (it doesn't launch in the U.S. until March).
Barclays analyst Ben Reitzes was out recently suggesting that an "iPhablet" with a 5-inch display may be in store for the final quarter of this fiscal year (September quarter), or the beginning of next year. Introducing this device would help mitigate downward pressure on average selling prices that will accompany a lower-cost model.
In the meantime, Apple could fend off competitive threats by focusing heavily on improving its software and services. iOS 7 will be detailed within the next few months and could see a major shift in its interface design direction now that Scott Forstall is out and Jony Ive is in. Apple could also make a big splash into mobile payments since it now has over 500 million active iTunes accounts with credit cards on file.
Phablets are particularly popular in China, which Cook believes will become Apple's biggest market. If Apple is to take the Chinese smartphone market seriously, a larger iPhone is a must.