Apple Enters Phablet Market With iPhone 6 (AAPL)

With the phablet marketing booming, Apple has no choice

By Brad Moon, InvestorPlace Contributor

As Apple (AAPL) prepares to enter the phablet market with the iPhone 6, will the move be seen as chasing rival Samsung (SSNLF) instead of innovating?

Apple iPhone 6 a Phablet entry
Source: Apple

Apple’s iPhone 6 is their entry into the Phablet market

Will Apple critics finally be silenced after years of bemoaning the company’s refusal to go bigger with its smartphones?

Will this move just be satisfying the current fad in smartphone form factor, only to see Samsung, Asus, Sony (SNE) or even BlackBerry (BBRY) come up with a version of the smartphone so radically different that it will turn the phablet into ancient history?

Yes to all but the last.

iPhone 6 Phablet – A Game of Catch-Up

Of course AAPL will be seen as chasing Samsung. The South Korean company practically invented the phablet — at least in the same way that Apple invented the tablet. Which is to say, Samsung took a device that had been kicking around the fringes (mostly in Asia), made a version of it that was mocked by critics but appealed to the mass market (the original Galaxy Note), sold tons and became synonymous with this new product category.

Someone had to be credited with creating the phablet phenomena, and when it comes to big smartphones with displays of 5 inches and up, that isn’t Apple, it’s Samsung.

AAPL is going to finally release an iPhone 6 phablet version because to ignore the phablet market would be bad business at this point. Every major smartphone manufacturer’s flagship device has a display of 5 inches or greater: Samsung, LG, Sony and HTC. The iPhone 6 will have some differentiating features (like sapphire glass) that makes it “better” than other phablets, but Apple will concede the point and follow Samsung in this case.

Information Week’s Eric Zeman points out that phablet sales are up 369% compared to the same quarter last year and the category now accounts for 34% of global smartphone shipments. In China and Asia — areas where AAPL is looking for its next growth opportunity as the Western smartphone market matures — phablets make up 39% and 43% of sales, respectively.

The iPhone 6 must be a phablet if Apple is to be competitive in those markets.

A phablet-sized iPhone 6 will put a stop to the criticisms that Apple has ignored what is on track to become the dominant segment in many markets. Plenty of people still will bemoan its cost — the bigger iPhone 6 is likely to come with a higher price tag — but how and when to tackle the entry-level smartphone market is a different battle.

The reason Apple is willing to finally admit Samsung has something, drop its “smaller is better” stance and release a phablet is precisely because it’s now clear the phablet is not a fad and there’s unlikely to be a rush to the next outrageous form factor.

Think of the PC market. There was a period when manufacturers experimented, but some basic segments developed that have remained fairly consistent over the years: the desktop, the laptop, the all-in-one. There are minor variations (tower vs. mini and subnotebook vs. 17-inch laptops, for example), but those basic segments have remained consistent because they’ve been proven to work. They are what users demand.

The smartphone market is approaching a similar stage of design maturity, and it’s clear that consumers want one of several form factors: a compact device that can be slipped discretely in a pocket, or a much larger phablet that’s pushing portability but offers a superior experience for productivity, reading, watching video or mobile gaming.

The mainstream phablet won’t get larger because once it approaches 7 inches, it is literally a tablet. And that’s a different device.

Apple has the first segment well-covered with devices like the iPhone 5s, but the iPhone 6 needs to be a phablet or it is going to be shut out of the second. And when it comes to smartphones with premium price tags — the high-margin business AAPL covets — consumer cash is increasingly favoring the phablet.

At this point, releasing an iPhone 6 that’s not a phablet would be akin to Apple selling iMacs but refusing to release MacBooks.

Bottom Line

That being said, the phablet eventually will be left behind by something else. Just as the tablet is  disrupting the PC business, something will take the place of the smartphone (whether it’s a phablet or not). It could be VR headsets, smartwatches or Google (GOOG) Glass.

But not for a long time.

Now isn’t the time to resist or to try going another direction; now is the time to admit the phablet is in demand and it’s going to remain one of the dominant smartphone categories.

The smartphone market still has a lot of life, and if Apple wants to remain a major player in the industry while returning the kind of growth that AAPL investors are accustomed to, the iPhone 6 will be a phablet.

It doesn’t matter if Samsung got there first.

As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.

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