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Phablet Sales Surge: What Will Apple Do?

Apple may have the highest share of high-priced smartphones, but it has zero share of the exploding market for phablets.

Size isn't everything, but to many consumers it is at least something -- especially when it comes to smartphones. Sales of large-screened devices have more than tripled in the last year as consumers snap up "phablets" with frenzied fervor. Apple may prefer to set trends rather than follow them, but this is one trend the iPhone maker can't continue to ignore.

Canalys says 280 million smartphones shipped during the first quarter of 2014. Of those devices, Canalys's data shows 81% of all shipped phones were Android devices, with iOS and Windows Phone trailing with 16% and 3%, respectively. Samsung continues to be the world's top supplier of smartphones: It has about 31% of the market, compared to Apple's 16%. It is worth noting that Chinese phonemakers, which often sell low-cost handsets, have displaced the long-standing incumbents in the top 10 rankings. Where Nokia, Motorola, Sony, BlackBerry, and LG once stood, now stand Huawei, Lenovo, Xiaomi, Yulong, and ZTE.

Shipments of smartphones with screens larger than 5 inches exploded by 369% during the first quarter when compared to the year-ago period. The market for large-screened devices, often called phablets, was defined by Samsung in 2011 and has been refined ever since. Sales of phablets accounted for 34% of smartphone shipments worldwide. In China alone, sales of phablets reached 39%, and in the Asia/Pacific region, phablet sales reached 43%.

In other words, Apple is missing a huge market opportunity.

[Apple's still solid on tablets. Apple's iPad Still Dominates The Enterprise.]

"This is still a market segment led by Samsung, but the trend is unmistakably toward larger-screen handsets at the high end of the market," says Canalys analyst Jessica Kwee. "[Samsung] held a 44% share of devices with displays of 5 inches and above, and 53% if the view is narrowed to look at 5.5-inch-plus displays."

Consider all of today's flagship devices. The Samsung Galaxy S5, LG G2, Nokia Icon, and HTC One (2014) all have 5-inch screens and full HD resolution. Each of these manufacturers also sells a high-end device with an even larger screen, such as the Note 3, G Pro II, Lumia 1520, and One Max, respectively. These latter devices all have screens larger than 5.5 inches.

Apple's iPhone 5, 5s, and 5c all have screens measuring just 4 inches. The iPhone 4S, which is still available, has a screen measuring 3.5 inches. All the rumors regarding Apple's next-generation iPhone point to a change in screen size. Report after report suggest the iPhone 6 will come in two screen sizes, 4.7 inches and 5.5 inches. Just this week, word broke that Apple will up the resolution from 1136 x 640 pixels to 1704 x 960 pixels (still short of full HD) to correspond with the increased screen size. It appears that Apple is finally responding to market demands.

"Consumers now expect high-end devices to have large displays, and Apple’s absence in this market will clearly not last long," says Kwee. "It is notable that 5-inch and above displays featured on almost half (47%) of smartphones with an unlocked retail price of US$500 or more. Of the remaining 53% of high-end smartphones, 87% were iPhones. Apple plainly needs a larger-screen smartphone to remain competitive, and it will look to address this in the coming months."

Apple may be selling lots of expensive devices, but it has no share of the market for big-screened phones. Apple CEO Tim Cook has gone on record a number of times to say the company is more interested in providing the best experience than the biggest phone. With one-third of all smartphone sales in the 5-inch and up category, Apple may have to ditch its ideals for once and give its customers what they want.

Could the growing movement toward open-source hardware rewrite the rules for computer and networking hardware the way Linux, Apache, and Android have for software? Also in the Open Source Hardware issue of InformationWeek: Mark Hurd explains his "once-in-a-career opportunity" at Oracle.