Has Apple Already Lost the Smart Watch War to Samsung?

Korean tech giant Samsung  (NASDAQOTH: SSNLF  )  beat Apple (NASDAQ: AAPL  ) to the punch in launching the first truly serious attempt at a mainstream smart watch when it unveiled its Galaxy Gear in September. There was just one problem:

Source: Samsung

It wasn't exactly as "smart" as Samsung would have you think. At least that seemed to be the prevailing wisdom in the weeks following the Galaxy Gear's public debut.

However, as Samsung's smart watch nears its third month on the market, it's presenting a growing problem for Apple and its investors.

Why?

Because despite all contrary opinions, the Galaxy Gear is actually selling. In fact, it's selling surprisingly well at that.

Defying doubters
According to reports from both Reuters and The Wall Street Journal, Samsung sold over 800,000 Galaxy Gear watches in the two months they've been on the market. This, of course, runs counter to nearly every expectation surrounding Samsung's smart watch.

To be fair, there were plenty of reasons to believe the Galaxy Gear wouldn't succeed, at least not yet.

Most reviews claimed, while kind of cool, that the device was more prototype than a true disruptor; a precursor to what someday could eventually be a mainstream product.

For starters, many felt the ecosystem surrounding the Galaxy Gear simply wasn't robust enough to drive mass adaption. Although the Galaxy Gear is indeed a smart watch in that it runs on a version of Google's Android mobile operating system, the Galaxy Gear's overall functionality remained relatively muted. Its typical uses were making things like reading text messages or checking the weather slightly more efficient by allowing users to avoid taking their phones out of their pockets. And while certainly handy, most believed consumers wouldn't want to pay the $300 price tag for this admittedly limited functionality.

It also seemed like the developer community had yet to turn its attention on the smart watch market. At the time of its unveiling, the Galaxy Gear came with limited selection of only 70 apps for users to add to the watch.

Yet, despite all of this, Samsung is succeeding while Apple remains nowhere to be seen.

Don't count Apple out
Even in light of Samsung's unexpected success with the Galaxy Gear, it probably shouldn't come as much of a surprise that Apple's much-expected iWatch still remains nowhere to be seen for one big reason.

Apple doesn't launch incomplete products, especially in its first attempt to break into and often redefine a product category.

Clearly, Samsung seized what appears to be a budding market opportunity here. However, it's fair to say the Galaxy Gear still has some observable flaws, a few of which I highlighted above.

In a similar vein, each of Apple's amazingly successful products that it’s launched since 2000 also had some other first-mover in their respective emerging industries. Jukebox software and MP3 players were nothing new when the iPod was launched. BlackBerry and Palm dominated the smartphone market when the iPhone was introduced in 2007. Amazon launched the Kindle in 2007, years before the first iPads.

In each of these cases, Apple waited for the optimal conditions to form rather than simply rushing into an emerging space. That involved waiting to get the hardware, software, and ecosystem all properly aligned before making its big push into these spaces.

New battlefront
Samsung’s shown a grim determination to prove it can out innovate Apple. And in the smart watch space, Samsung certainly has thus far. However, if history is any indicator, tech investors would be short-sighted to overlook Apple's large shadow.

At the end of the day, being first into an emerging technology platform shouldn't be what matters most to investors. As we've seen from countless examples, the company that makes the greatest leap forward is often the one that's most handsomely rewarded. And when it comes to the kind of breakthrough changes that truly usher in a new era for a product or market, you'd be a fool to count Apple out.

The smart watch market will be no different.

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Read/Post Comments (10) | Recommend This Article (1)

Comments from our Foolish Readers

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  • Report this Comment On November 20, 2013, at 7:01 PM, fauxscot wrote:

    Are you on crack?

    This isn't even wrong.

    Two armies, a million strong, meet in battle and you call the contest based on the first few millseconds?

    Really? Do you remember how widely panned this klunker was? How expensive? How useless? How exclusive to ONE handset? And did you forget for a moment who designed it?

    Nice work.

  • Report this Comment On November 20, 2013, at 7:40 PM, Trololololo wrote:

    Clickbait much?

    There is a gigantic difference between the number of products SHIPPED vs. actually SOLD. Tonner conveniently used the figure for the number of Samsung watches SHIPPED and inserted that in place of the actual number of watches that we're PURCHASED. That makes his article above highly inaccurate. Other stories I have read noted that over one third of the Samsung watches shipped have already been returned.

    This amounts to nothing more than FUD against Apple.

    As an MF member, I expect much more from its writers. Could the editorial staff (if one exists) please fact check before people like Tonner are allowed to publish such garbage?

    I really am disappointed that stuff like this is allied to show up on your site. Shame on you.

  • Report this Comment On November 20, 2013, at 7:57 PM, fneww1212 wrote:

    Update: Although Reuters reports the figure represents sales, Korean publication Yonhap claims Samsung is referring to shipments to retailers. Samsung Korea has confirmed in an email to The Verge that the figure relates to shipments as originally reported by Yonhap.

  • Report this Comment On November 20, 2013, at 8:03 PM, twolf2919 wrote:

    Let's get this straight: Samsung, despite heavily advertising this smart watch managed to sell an "amazing" 800,000 watches in TWO MONTHS - WORLD WIDE! Put in perpective: Apple and Samsung sell millions of their phones in the first weekend of a new phone's availability (e.g. Apple sold 9 MILLION devices in the first three days of availability).

    Even the iPhone 5c - labeled as a failure by dudes like you - for "only" selling about 3 million in its first 3 days....

    If 800,000 sold watches "win" the smart watch war, it ain't worth fighting that war! If Apple enters the smart watch market and 10% of its new iPhone buyers (of which there are about 200 million per year) get an iWatch, Apple would be selling about 20 million units per year! If iWatches are backward compatible to older iPhones - a very likely possibility since Apple is already "seeding" its phones with low-power BlueTooth and motion processors - then yearly sales could be even higher. Samsung's annualized rate for its watch is 4.8million.

  • Report this Comment On November 20, 2013, at 9:38 PM, HiramWalker wrote:

    The number produced and shipped is 800,000. Samsung has admitted this is only the shipped number. Actual sales so far have been under 100,000 and reportedly a third of these have been returned by unhappy customers.

    But don't bother to report anything like actual numbers, as that's not your job. Your job is spinning for Samsung, and Samsung spends billions more than any other company in the world on spin. So keep up the bad work.

  • Report this Comment On November 20, 2013, at 11:21 PM, petergreyhill wrote:

    apple doesn't have a smartwatch so what "war" ?

  • Report this Comment On November 21, 2013, at 12:55 AM, SimchaStein wrote:

    Congratulations - your hit a new depth in 'stupidest MF headline'. Gear is already a failure. When Apple launches its 'wrist' device, it will dazzle.

  • Report this Comment On November 21, 2013, at 6:28 AM, st0815 wrote:

    Oh give it a rest already. Nobody produces millions of devices simply to store them in a warehouse. If there are 100k of them lying around and they don't sell, then you don't order more of them. The numbers are not "wildly" inaccurate, they will deviate slightly but not by a huge margin.

    BTW: No, Apple does not report retail numbers either - they report what they sell - regardless whether that to a customer through their own stores or to a distributor. Which is the correct thing to do - resellers can report their own numbers if they so chose. And that's been brought up quite frequently - if you invest into Apple stock you should know that by now.

  • Report this Comment On November 21, 2013, at 8:20 AM, bugnuts wrote:

    @st0815: Not true. Samsung books a "shipment" when a product leaves the warehouse. Apple books a "sale" when it receives payment and the product reaches the customer. Samsung may expect to "sell" 800,000 watches (which is a ridiculously small number anyway), but that's not the same as completing a transaction.

  • Report this Comment On November 21, 2013, at 1:56 PM, bruinwriter78 wrote:

    Two huge grains of salt to consider when talking about Samsung:

    1) Samsung has been fined for making fake posts about their products on social media networks

    2) Samsung and the media only report estimated sales and revenues. Even their quarterly earnings reports have big disclaimers saying that they are for investors' convenience but are not exact until they release their audited earnings.

    Samsung has literally buried this information. The only combination of search words that brings up their audited earnings report is "audited income samsung 2012": http://www.samsung.com/us/aboutsamsung/ir/financialinformati...

    In Samsung's audited earnings report for 2012, they list revenues of $188B, with an operating profit of $27B and net income after taxes of $22B

    Contrast that with the media reporting that Samsung estimated $233B in revenue with an operating profit of $33B (they never talk about net income after taxes in these reports)

    Why is it that Samsung overstates their revenue by 23%, operating profit by 22%, and doesn't even talk about their net income after taxes and the media continues to report their "estimates" like they're the ten commandments?

    Can you imagine what the media would do to Apple if it missed estimates by over 22%?

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