Will Apple Make 2014 the Year of the Smartwatch?

While rumors of Apple  (NASDAQ: AAPL  ) 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 (NYSE: SNE  ) 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.

Company Apple Samsung Sony
Annual Revenue $170.9 billion $187 billion* $68.1 billion*
2014 1.3% 1.2% 3.3%
2015 3.2% 3% 8.1%

*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.

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Read/Post Comments (9) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 13, 2013, at 3:43 PM, thethreestooges wrote:

    Jamal,

    Will you be willing to pay $499 for an Apple iWatch in 2014? How about an Apple flex curve iTV? or an iWalkiTalki?

    From the way you write this article, it is nothing but a chance to put tibits of Apple bashing here and there:

    "Samsung, reportedly has an astonishing 30% return rate in Best Buy locations"

    "Apple: It has lost its innovative edge and is conceding business at the lower-end of the markets"

    How much Samsung paying you for this article?

  • Report this Comment On November 13, 2013, at 3:54 PM, twolf2919 wrote:

    You need to do better read your own writing:

    "The company is projecting the smartphone market to hit 15 million units shipped worldwide in 2014"

    You must have meant "smart watch market" rather than "smartphone market" - since the latter is a heck of a lot bigger than 15 million.

  • Report this Comment On November 13, 2013, at 4:00 PM, twolf2919 wrote:

    @thethreestooges,

    You make no sense. You claim that the author is in Samsung's pocket but at the same time quote the author with "Samsung, reportedly has an astonishing 30% return rate in Best Buy locations" - which is clearly not flattering to Samsung!

  • Report this Comment On November 13, 2013, at 4:07 PM, TMFJCar wrote:

    @thethreestooges,

    Overall, I thought the article was fairly complementary of both Apple and its opportunity in this market.

    Nope, not compensated by Samsung at all. However, as the disclosure states, I own Apple. In addition, I have an iPhone 5 (not a Galaxy).

    Thanks for commenting!

    Jamal Carnette--the author

  • Report this Comment On November 13, 2013, at 4:12 PM, TMFJCar wrote:

    @twolf2919,

    Oopsie, I read about smartphones so much I must have got my wires crossed. Anyway, I changed smartphone to smartwatch. Thanks for the heads up!

    Thanks again,

    Jamal Carnette--the author

  • Report this Comment On November 13, 2013, at 6:03 PM, mieswall wrote:

    100 highly qualified people working on it. iWatch registered in several countries. Area of "intense interest". Samsung fiasco. Sapphire production capability coped by Apple. Several related patents. Ives St Laurent and Burberry key execs now in Apple's team. And Ive's "most important work of my life" still to be known.

    This is going to be huge.

  • Report this Comment On November 13, 2013, at 7:30 PM, st0815 wrote:

    "Wearable Computing" has been "the next big thing" for decades. So far nobody has come up with a good explanation why that should be the case.

    There are some niche applications like measuring pulse, but those don't actually look like major growth markets. Plus Nike already makes that iOS accessory.

    Then there is the claim that a smartwatch would help "allowing consumers to control their home". But why would that be the case? What does a smartwatch bring to the table which actually contributes to that goal? Such applications appear to be much more suitable for smartphones or even tablets. A small display can be an attractive compromise when on the go, but in our own homes, large displays are a pleasant luxury.

    Maybe Apple finally finds a use for a smartwatch and makes an attractive product for it. I'd like to see that one before I'd take a guess on the size of the market. But of course if I just throw out a random number of billions, there is a small chance that it may turn out correct. And a large one that nobody remembers when I was wrong.

  • Report this Comment On November 13, 2013, at 9:54 PM, demodave wrote:

    st0815,

    Sure, and tablets were going to be a failure, and Apple wouldn't "just waltz in here and take over the smartphone market". Those of us who are paying attention already know that you are wrong.

  • Report this Comment On November 14, 2013, at 2:56 PM, Quadrille73 wrote:

    It really doesn't matter how many skilled staff or fashion designers Apple have; success is by no means guaranteed. And, the longer they leave it, the less assured they should be.

    Smartwatches are already selling for less than $100 / £100. There's a real risk that Apple has missed the boat; that it's watches are overengineered or even overdesigned. If Casio bring one out for $50/£50 or less, then the market for a top-end Apple watch will shrink rapidly.

    Apple have the quandary, do they aim for top end only, get the huge fashion margins and force iPhone users to buy them? Risky; if the Watch+Phone price is rising while rivals' W+P pices fall, they could drive away more customers than they win.

    But if they go low, to ensure solid take-up by iPhone users, they lose that lovely margin.

    And if they've overengineered, they CANNOT go low.

    All the signs are that rivals are starting simple and low-priced; they'll add new features later. This is the worst possible scenario for Apple, but they are too late to define the market, as they have before.

    Will Apple have a watch that women are happy to wear?

    Has anyone asked what Swatch, and other traditional watch companies are doing?

    I am NOT saying all this means Apple WILL fail - I'm saying it means Apple COULD fail - and even if they succeed, it may not be on their terms.

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