Will Apple Make 2014 the Year of the Smartwatch?

While rumors of Apple (AAPL 0.73%) bringing a smartwatch to market have been discussed for years, it is now reaching a crescendo with analysts providing new fodder. In the past week, both Piper Jaffray analyst Gene Muster and DisplaySearch VP of the Greater China Market David Hsieh weighed in.

Munster, who conceded he's been wrong before, expects the "iWatch" will become a reality in 2014. David Hsieh is even more specific: "Apple's wearable iWatch is expected to come with an 1.7-inch OLED display for men's watches and a 1.3-inch OLED screen for women." This isn't a new market -- Samsung's (NASDAQOTH: SSNLF) Galaxy Gear and Sony's (SONY -1.60%) SmartWatch are notable competitors. However, Apple investors should widen their gaze to see the opportunity. 

2014: Year of the smartwatch?
A recent report from NextMarket Insights addresses the massive opportunity: The company is projecting the smartwatch market to hit 15 million units shipped worldwide in 2014. Using Samsung's Galaxy Gear MSRP as a proxy for the per-unit price ($300) and you can see this is a $4.5 billion market, next year. But it gets better in 2015 as the natural progression from early adopters to the early majority ensues. NextMarket pegs 2015 to hit 37 million units shipped, or a total addressable market of $11.1 billion. Using half of the total addressable market shows the possible increase to revenues on a nominal basis.

*Using today's currency conversion rates

Although this does provide added revenue, these numbers could just be scratching the surface. Lackluster competition and Apple's rumored plans could make Apple's smartwatch a must-have product. 

How are the current participants faring?
In a word, poorly: Apple's biggest competitor, Samsung, reportedly has an astonishing 30% return rate in Best Buy locations. It appears the functionality is severely limited as a stand-alone unit—it must be paired with a Samsung Galaxy device for optimum functionality. Samsung appears to be addressing the functionality concerns by "bundling" the smartwatch with the Galaxy Note 3.

Sony, on the other hand, doesn't have that problem. The SmartWatch is device agnostic, but only works on the Android operating system. The main concern is the bugginess of the software, its touchscreen in general, and a lackluster display. Sony appeared to want to beat the big boys to the punch by any means necessary, but few analysts consider this unit to compete seriously going forward.

Apple's opportunity
According to Cantor Fitzgerald's Brian White, Apple has a desire for the smartwatch not to just compete with the current units on the market, it also takes a step toward becoming a "multi-purpose gateway in allowing consumers to control their home." If true, this becomes more than just the next consumer electronics device, it becomes the future and the next step toward the "Internet of Things." If Apple can fill the niche of providing the user interface of this revolution, then NextMarket's numbers will be laughably low.

Final Foolish thoughts
We all know the knock about Apple: It has lost its innovative edge and is conceding business at the lower-end of the markets. Matter of fact, most analysts consider the smartwatch to be a hiccup on the way to the long-awaited TV set. However, by the mere portability of the smartwatch, it could be much more important to the average consumer. Sony and Samsung have both released inferior products of limited functionality. If Apple is able to widen its gaze and pair its army of dedicated developers along with its seamless operating system, this could be the game changer Apple fans have been looking for.