Will Apple’s Growth Answer Come From Here?

Barclays Capital analyst Ben Reitzes is desperate for Apple (NASDAQ:AAPL) to enter the phablet market and insists such a strategy would rescue the company from its current woes. According to Reitzes, his firm has projected that phablets — a progeny of the smartphone and the tablet — will dominate mobile shipment growth in the coming years: growing from just 27 million units sold last year to 230 million by 2015.

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And while the iPhone was the most useful phone in the market, it was becoming “less important since phone calls [were] becoming less important than navigation, texting, videos, books, and web access for many,” the analyst wrote in a research note. Reitzes said he was “longing for an iPhablet,” especially considering that “the larger screen seems to be more popular outside of the U.S. and the phablet has significant momentum in China.”

However, he conceded, Apple was likely start off its smartphone upgrades this year with an iPhone 5S targeted at cheaper markets. A second iPhone model, with a five-inch screen, may be launched in the last quarter of this fiscal year or at the start of next year. A new iPhone could also “offset some of the ASP [average selling price] declines” expected from the arrival of the low-end phone, he added.

In addition to hardware upgrades, Apple would need to add near-field communications, advanced imaging features, and improvements in navigation to this properly upgraded version of the iPhone to make it competitive in the crowded market, the analyst wrote.

However, according to Reitzes, the most important changes will come from improvements to the iOS operating system and Apple’s other software and services. Apps were and will be the “differentiator” for Apple against its peers “over the long term” and iOS provided “a distinctive [user] stickiness,” he said.

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“We believe Apple can turn perceptions around with a real move into payments, an integrated iOS-led television service, and improvements to iCloud (including subscription-based services),” he wrote, according to Barron’s. Reitzes did reiterate an Overweight rating on Apple shares and a $575 price target.

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