Will Google's Newly Launched Smart Watches Fall Flat?

Google (NASDAQ: GOOG  ) (NASDAQ: GOOGL  ) officially launched its smart watch devices on July 7, through its Google Play store. The Android-powered Samsung (NASDAQOTH: SSNLF  ) and LG (NYSE: LPL  ) smart watches are clearly a shot across Apple's bow  (NASDAQ: AAPL  ) .

The war between Google and Apple never seems to end. But, while you might think Google has gained an edge by getting its smart watches out first, Apple could be the one smiling in the end. Interestingly, Apple shares rose 2% on the day of the announcement, on a down day for the broad market. Plus, Google and LG both fell that day, implying that investors are far from convinced that Google has won the smart watch war.

Google may have gotten a jump on Apple in terms of timing, but Apple may have the last laugh when it comes to smart watches.

Android watches are finally here
Separately, Google announced two watches that will be offered by Samsung and LG, both of which will run on Android Wear, Google's new operating system specifically designed for wearable devices. Samsung's watch is called Gear Live, features voice activation, and will sell for $199.

Source: Google Play

Meanwhile, LG's device, the G Watch, also responds to voice commands and will sell for $229. To operate both devices, you will need a smartphone running on Android 4.3 or higher.

Indeed, there are some interesting features that make it seem as if Google is the early front-runner in the race for smart watch domination. Android Wear can collect information about you and make suggestions based on your activities and schedule. For example, the device can display weather forecasts and flight information, and tell you what you'll need to take with you.

In addition, the voice activation is an intriguing feature; you can say, "Ok Google" to ask the device questions, or send text messages.

Source: Google Play

Still, if you think Apple has already lost the smart watch war before it's even begun, think again.

First-mover status overblown
While Samsung and LG's respective Android-powered smart watches are officially out, you shouldn't, by any means, think Apple is at a disadvantage because it's late to the game. In technology, first-mover status isn't all it's cracked up to be. Usually, getting a product to market first isn't nearly as important as giving consumers what they want. Getting it right with consumers has been Apple Chief Executive Officer Tim Cook's mission since he took the helm of the technology giant.

Cook has repeatedly stated that Apple's goal is to make the best products, not the most products. It's likely the same rationale holds true when it comes to the timing of product releases. While no firm release date has been confirmed, it's likely Apple won't unveil its presumably named iWatch until the fall, at the earliest.

Whenever Apple's smart watch is actually released, it's likely to have a meaningful impact on the company's bottom line. Apple derives fat margins from its products, and even assuming fairly modest margins, Apple should still see a strong boost from the iWatch.

Analyst estimates vary, but assuming a $200 price tag and sales rates of 3 million-5 million per month, Apple could generate about $1 billion per month in sales. If you peg a 30% gross margin on that, relatively modest considering Apple's other devices bring in much higher margins, the iWatch could produce about $4 per share in earnings. This forecast was provided in a recent article in Barron's. It's worth noting that $4 per share would represent 10% growth for Apple.

The likely rewards for other watch makers are cloudier. For instance, benefits from its smart watch didn't stop Samsung from warning investors its current-quarter operating profit could fall to a low not seen in two years.

Final thoughts
To summarize, it would be premature for Google, Samsung, and LG to congratulate themselves because their smart watches were released first. You won't see Apple's watch for several more months, but if the technology proves to be superior, the company will have the last laugh.

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  • Report this Comment On July 09, 2014, at 12:43 PM, MartinMTurner wrote:

    Apple is rarely the first mover in a market. Aside from the Apple II, which probably was the first 'buy-complete' PC, the Mac, iPod, iPhone and iPad were each radically better entrants into markets which already existed. Apple's two 'great' firsts, the Newton and the Apple Camera, never achieved great success.

    If Apple can do to smart watches what it did to MP3 players, smartphones and tablet computers, then it will have a major success on its hands. If it can't, and knows that it can't, it might be better to keep its hands out.

  • Report this Comment On July 09, 2014, at 9:09 PM, AppleSauce007 wrote:

    Yes. Google's watches will fall flat.

    They were DOA.

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Bob Ciura

Bob Ciura, MBA, has written for The Motley Fool since 2012. I focus on energy, consumer goods, and technology. I look for growth at a reasonable price, with a particular fondness for market-beating dividend yields.

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