Phablets — those 5-inch or larger smartphones everyone was making fun of a few years ago — are on an absolute tear. Not only are they the hottest selling smartphone category, now they’re eating into small tablet sales — the same devices that have been driving tablet sales.
Nowhere is the irony of this development felt more deeply than at Samsung (SSNLF). The company that popularized the phablet segment in North America faces falling profits and it’s pointing fingers at phablets for eating into its small tablet sales.
Phablets: From Joke to Market Domination
The problem for Samsung is that, once everyone else stopped laughing at the original Galaxy Note (the 2011 device’s claim to fame was an enormous 5.3-inch display), they realized the phablet had sold more than 10 million units in less than a year. Smartphone display sizes were already on an upward trend, and the apparent consumer demand for bigger drove the phablet into the mainstream. Manufacturers reacted.
According to Canalys, the category of 5-inch and larger smartphones grew by 369% in Q1 2014 compared to last year and now accounts for over one-third of all smartphone shipments worldwide. Perhaps more tellingly, 47% of smartphones with a retail price of $500 or more — the flagship devices — were phablets.
Smartphone manufacturers including Sony (SNE), LG, HTC and Microsoft’s (MSFT) Nokia have been focusing on phablets. It’s virtually impossible to find a flagship smartphone released in 2014 that doesn’t have a display of 5-inch or larger — other than Amazon’s (AMZN) foray into mobile with the Fire Phone. Samsung is still tops in phablet sales, but it no longer has the market to itself.
The only major smartphone manufacturer not currently in the phablet game is Apple (AAPL). And with that company all but certain to release its own phablet this year in the iPhone 6, it’s safe to say that phablets have officially conquered the high-end smartphone market.
Small Tablets Were Once the “Phablet”
When Apple first released the iPad in 2010, competitors were at a loss. Despite Apple’s reputation for premium pricing, no one seemed able to manufacture a decent tablet that cost less. Android, the operating system powering most of these tablets, was also less polished than Apple’s iOS, and as a result, the iPad dominated the tablet market.
Then the competition found the chink in Apple’s armor…