Author(s): Raghu Gopal
Apple made it clear when reporting its results for the second quarter of 2017 that more and more people have been choosing its bigger phones. The Plus size of the iPhone was more of a niche when it was first introduced in September 2014. The 5.5-inch iPhone 6 Plus was a fraction of its total flagship volumes, compared with the 4.7-inch iPhone 6. Now, a few years later, we believe volumes between the two sizes on the latest flagship phones such as the Apple iPhone 7 and 7 Plus and the Samsung Galaxy S8 and S8+ are approaching par.
Consumer preferences and behaviour are changing as content and connectivity have become enablers for larger screens. Mobile subscribers are streaming entertainment and using wireless data at an accelerating pace. Content is virtually unlimited and data bundles keep growing. These are the perfect ingredients to alter demand. None of this can be uninvented — large devices are here to stay.
If the concept of a phablet seemed odd to many people a few years ago, the size of even slightly older-generation smartphones seems quaint. Several years ago in some Asian markets, it wasn't unusual to see people wander the streets holding what appeared to be tablets to their ears. Carrying a device with at least a six-inch display was a trade-off; there was clearly something on the other side of the screen that outweighed any inconvenience.
Six-inch displays — and larger — are becoming a norm as smartphone makers take advantage of new component technologies to accommodate more screen into less real estate. We've written several times about the disappearing bezel (see Moving Beyond the Bezel). Pushing displays past the edge of a phone allows device makers to offer users more screen in less space.
Samsung's latest large flagship, the Galaxy S8+, provides 6.2 inches of screen at an 18:9 aspect ratio. (This ratio falls between that of common TV broadcast content and that of modern cinema and shows how important video content has become to handset design.) The phone maker's upcoming Galaxy Note 8 is expected to be even larger. We believe LG's next V series will break the six-inch barrier. Phone makers are pushing the screen boundaries.
For device manufacturers, bigger devices support higher average selling prices. For wireless operators, larger phones drive higher average revenue per user. There's a direct relationship between display size and content consumption: larger screens boost larger data buckets. Furthermore, the increasing prices of bigger phones could cause operators to require longer contracts, turning two year deals into three, reducing post-paid churn (see A Grand Vision).
On the surface, it appears that there won't be any losers here, but we believe that sales of big phones are eating into sales of small tablets. In theory, multi-device ownership could get a boost at the other end with the need for smaller cellular devices for specific occasions, such as going for a run. This could work where operators offer a service that allows a phone number to be shared across devices such as T-Mobile's Digits plan in the US.
The law of large numbers is about to kick in for smartphone makers, component suppliers, mobile operators and subscribers. Phones are getting big, and this could be a big plus for the industry.