Apple Must Become Phabulous

Despite sitting on a $140-billion Mount Everest of cash, Apple has been the target of slings and arrows from many technical analysts (including yours truly) and financial analysts. Last week, our friend Jamie Townsend, Managing Partner for Strategy & Research at TownHall Research (www.townhallresearch.com), issued a client newsletter with the headline “Lack of a Phablet Underscores Growing Risk for Apple.

“Here’s a brief excerpt: “We believe that Apple’s smartphone momentum will be increasingly threatened by the absence of a phablet in its product line. Phablets are projected by ABI research to account for 18% of overall smartphone demand in 2013. “Like with the iPad mini, Apple appears to need to react to the changing demands of mobile device consumers faster than it has been. We are not sure the company can. TownHall is maintaining its Avoid rating on Apple. Apple investors have suddenly become concerned about Apple’s ability to maintain its mobile momentum and the margins that have gone with it.” Townsend notes that Apple shares have declined 35% since September 19 , 2012.

Quoting TownHall’s research partner ABI Research, Townsend continues, “ABI Research projects that almost 83 million phablets were shipped in 2012, an increase of 4,504% from 2011. A large portion of these shipments can be attributed to the Samsung Galaxy S3. ABI Research projects that more than 150 million phablets will be shipped in 2013. This will account for 18% of all smartphone shipments.”

Before we go any further, let’s wave a red flag. ABI is apparently defining a phablet as any smartphone or phone/tablet hybrid device with a screen diagonal of 4.6 inches or greater, which is not how the rest of the world defines the category. Most would agree that Samsung defined the category with the successful introductory of its originally Galaxy Note phablet, which has a 5.3-inch, 1280×800 AMOLED screen.  It’s successor, the Galaxy Note II, has a 5.5-inch,  1280×720 AMOLED screen.  And the new LG Optimus G Pro, has a 5.5-inch, 1920×1080 AMLCD screen with 400ppi.  (LG Display showed a 5-inch, 440ppi version of this display at the SID show in May 2012, and it was beautiful.)  So, a more widely acceptable defintion would have phablet screen sizes starting at 5 inches, or perhaps at “over 5 inches.”

The now somewhat long-in-the-tooth Samsung Galaxy Nexus smartphone has a 4.65-inch screen and fits comfortably in a medium-sized hand. Samsung’s current top-of-the-line smartphone, the Galaxy S3, has a 4.8-inch screen but appears to fit it in a case the same size as that off the Nexus.  Townsend estimates that four out of five of the device that ABI calls phablets will have screens in the 4.6- to 5.0-inch range. I would strongly suggest these devices are not phablets, but they do represent the state of the art in large-screen smartphones.

This redefinition does not make Apple’s situation look any better; it makes it look worse. Not only does Apple not have a true phablet, but it’s smartphone hardware no longer looks impressive. The 3.5-inch screen of the iPhone 4 and 4S had become laughably small for the category, and the iPhone 5’s 4-incher brought the product only to what was then the lower edge of acceptability. Apple, which revolutionized the smartphone market with the Retina display (a high-pixel-density display with 326 pixels per inch), has now fallen well behind the curve. There are good reasons why the Galaxy S3 now outsells it.

Part of the problem is Apple’s tradition of one product introduction (per product line) each year. Apple realizes this is an antiquated concept, but sharply accelerating the pace of an entire new-product development culture and infrastructure has got to be an extremely difficult and time-consuming endeavor.

LG's Optimus G Pro, with 5.5-inch, 400ppi screen is the latest true phablet to hit the market.

LG’s Optimus G Pro, with 5.5-inch, 400ppi screen is the latest true phablet to hit the market.

We have left one logical thread hanging. If a 5-inch screen diagonal defines the lower boundary of phablets, what is the upper boundary? Nobody seems to have trouble calling a 7-inch tablet a tablet, and nobody seems to think a device of that size should contain phone capabilities. Let’s look at slightly smaller screen sizes for our upper imit. LG’s new Optimus G Pro matches the screen diagonal of the Galaxy Note II with 5.5 inches, but has a 1920×1080 pixels, for 400 ppi!  The 6.1-inch phablet that Hauwei showed at CES is quite a handfull, with a screen diagonal slightly larger than that of a typical eBook Reader, and holding it up to your ear feels awkward. If a phablet is a single device that combines the functions of a phone and tablet without compromising either excessively, the Huawei 6.1-inch is surely probing the upper bound of phabletness.

But it’ not likely that Apple will have to worry about making a phablet with a screen that’s too large, since it has seemingly forgotten how to make a smartphone with a screen that’s large enough.

Ken Werner is Principal of Nutmeg Consultants, specializing in the display industry, display manufacturing, display technology, and display applications. You can reach him at ken@hdtvexpert.com.