Why the 'Phablet' Is Not a Fad

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Apple ( AAPL ) and other US consumer technology giants may have missed their chance to gain a loyal consumer following in many emerging markets because they were unable to tweak their products to meet local preferences, as South Korean technology company Samsung (OTCMKTS:SSNLF) and some lesser-known local brands did.

That's the clear message from new numbers on global computer device shipments from technology market research firm International Data Corp. (IDC).

In short, it seems that newly affluent consumers in emerging nations are leapfrogging the PC era altogether. Many are still carrying low-end feature phones, but they're trading them in, in record numbers, for smartphones. They are particularly enthusiastic about "phablets." And they are much more cost-conscious than Western consumers are.

These smartphones with the awkward nickname have screens that are five to seven inches wide. To American shoppers, they may look clumsy or even comical when viewed as a phone. But in China and India, they look like true multi-purpose devices.

Phablets as a category have already overtaken tablets and PCs in emerging markets, according to the report from IDC on global shipments of consumer devices in the second quarter of 2013.

IDC has downgraded its estimate for global shipments of personal computers for the second time this year because sales of PCs in Asian markets have unexpectedly slowed as much as they have in Western markets. (That category includes laptops and "convertibles" as well as desktop PCs.)

Earlier forecasts had assumed that emerging markets would make up some of the losses from US and European sales. The enthusiasm for phablets, and for other mobile devices, is partly responsible for the global slowdown. The report also cites the slowing of China's economic growth and anxiety over the impact of future Federal Reserve monetary policy changes for the lowered forecast.

IDC now estimates that global personal computer shipments will fall by 9.7% year over year.

The report is not a total disaster for the PC industry. Over time, it sees sales flattening rather than falling off a cliff, with demand for new and hybrid categories of PC like ultra-slim and convertible PC/tablets making up for some of the decline in PC sales. For 2017, it estimates overall PC shipments of 319.8 million worldwide, compared with 349.2 million in 2012.

But the hot category right now, particularly in emerging markets, is the phablet. Device makers shipped 25.2 million phablets in the second quarter, a year-over-year increase of 620%. By comparison, shipments totaled 12.6 million tablets and 12.7 million portable PCs, according to IDC.

Samsung, the first major company to break through with a supersized phone, is the clear favorite among smartphone brands in both India and China. In both countries, homegrown brands are giving Samsung a run for its money, while US and other Western names trail in the single digits.

In India, the smartphone market overall is growing fast, with the total number shipped up by more than 200% year over year to 9.3 million. Nearly one-third of those devices fall into the phablet category, according to The Times of India .

Although Samsung is the top smartphone vendor, with a 26% market share, second and third places are taken by local companies, with a combined 35% share. Nokia ( NOK ) and Sony ( SNE ) are the top-selling Western brands, but register only 5% each of sales in the second quarter, according to The Times .

That local edge is even more pronounced in China.

As in India, Samsung is the top-selling brand, but the rest of the top six are Chinese brands, according to The South China Morning Post .

Apple pops up in seventh place in China with 4.8%, having only recently been overtaken by Xiaomi.

As the British newspaper The Guardian points out, timing is everything in the tech business. Dell ( DELL ) unveiled the Dell Streak with its five-inch screen too early, in July 2009. But Apple may have waited too long. If it introduces a phablet, and it has not said it will, it's unlikely to appear until 2014 at least.

The success of Xiaomi, only three years after the company was formed, illustrates another attribute of emerging market consumers: Compared with Western consumers, they're extremely price-conscious.

Xiaomi's latest model, whose name translates as Red Rice, is priced at just $130 without a contract, but has features ordinarily found in higher-end phones.

It now appears that Xiaomi is taking its brand on the road to other emerging markets, including Russia and Indonesia.

If the company name sounds familiar, it's probably because it just hired executive Hugo Barra, formerly of Google ( GOOG ). The Post surmises that the hire is part of an ambitious plan for international expansion.

See also:

Tech Products News: Apple's Trade-In Program, and a Simple Android Controller That Kickstarter Loved

Decoding Nintendo's 2DS and Cheaper Wii U: Is the Video Game Giant Struggling?

Four Reasons the New York Times Was Hackable




The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Stocks , Technology

Referenced Stocks: AAPL , DELL , GOOG , NOK , SNE

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