Bigger is Not Always Better

NPD reported our smartphone sales results for fourth quarter and 2013 for the year today. Among the more interesting tidbits are the continued strength of Apple in the market in spite of an ongoing shift away from postpaid sales and into prepaid markets, and the growth of the market itself in spite of numerous headwinds and projections of industry stagnation. The mobile market remains the most vibrant segment of the CE marketplace, with not just phones contributing to the market dynamics but the entire ecosystem of cases, headphones, speakers, and the traffic and excitement the category brings to CE.

Some other interesting factoids; the excellent mix towards high storage devices Apple sees in its iPhone 5S, the nice volumes LG continues to see in the prepaid market, and the US indifference to the phablet market. This is a key point we want to address here. First and foremost we need to recognize the volume of the smartphone market dwarfs every other core hardware business. NPD’s Mobile Phone Track reported 121 million units sold in 2013, in comparison to the 47 million tablets and 31 million notebooks we counted in our Consumer Tracking Service. In 2013 just 3.3 million of all smartphones sold were phablets (a smartphone above 5.3” in size). In the fourth quarter phablets represented 4 percent of all smartphone sales. A far cry from what has been reported in other geographies and at current volumes (and growth rates) a segment that is clearly not threatening smaller size tablets or any other mobile device segment.

Why do sales in the US seemingly lag behind in this emerging segment? There are a couple of obvious answers, ones that speak to the unique dynamics of the US market. The first is dominance of Apple in the US and its reluctance to embrace this segment. With Apple holding almost half of the smartphone market it almost goes without saying that until Apple releases a phablet the US will remain underdeveloped in this segment. Secondly is also likely a US centric eccentricity, which is a focus on price. With the extraordinary growth of 7” tablets there seems to be little US appetite for a large screen phone that does much of what tablets do with an added device cost and a service cost as well. That added cost is obvious when you compare a phablet and a 7” Android tablet. This holiday Android tablets sold for, on average, $100, clearly the few phablets available sold for much more than this, with the added expense of a service contract. As the public Wi-Fi markets continue to build out, and more and more homes obtain or upgrade their in-home Wi-Fi infrastructure the additional cost for on-the-go computing and content consumption that a phablet requires is not a compelling solution. US consumers are more comfortable owning multiple devices and using them in defined scenarios than other markets are, and are able to acquire them at very attractive prices.

Until Apple releases a phablet or pricing falls significantly, we remain skeptical of seeing a surge of interest in the US in phablets. However, one fact to keep in mind is that, even if just 10 percent of smartphone buyers opt for a phablet that number would challenge the volumes of almost every segment in the tablet or notebook market, so while share may be capped in the long-term there remains volume opportunity in the future.

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