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Tales of Desperation and Innovation in Smartwatch Land

http://www.fool.com/investing/general/2013/09/09/tales-of-desperation-and-innovation-in-smartwatch.aspx

Leo Sun
September 9, 2013

Investors haven't been impressed with the new smartwatches released by Samsung (NASDAQOTH: SSNLF) and Qualcomm (NASDAQ: QCOM) recently.

The tiny smartwatch market, which market research firm ABI Research estimates could generate $370 million in sales this year, is already a crowded space with devices like the Pebble, Motorola's discontinued MotoACTV, Sony's (NYSE: SNE) SmartWatch, and other similar devices. To make matters worse, Apple (NASDAQ: AAPL) has been long rumored to be developing a watch of its own.

Why are all of these companies are fighting tooth and nail over $370 million in possible sales of smartwatches? Samsung generated $187.85 billion in revenue last year. Qualcomm reported $19.12 billion in sales and Sony brought in $72.35 billion. Why are these companies so intent on dividing up such a narrow slice of the market?

The answer lies in the future. The same report from ABI Research claims that the smartwatch market could grow twenty-fold by 2015 if current products take off.

The desperation factor
After years of explosive top and bottom line growth, Apple and Samsung are reporting slower growth as investors wonder if there will ever be another iPhone, iPad, or Galaxy S to boost sales over the next decade.

For Apple, growing after the loss of its iconic founder Steve Jobs has been tough. Instead of offering new products, CEO Tim Cook has played Wall Street's game of stock buybacks, dividends, and acquisitions. Instead of new products, Cook released refreshes and variants of its core iPhone and iPad lines, which together accounted for over three-fourths of the company's 2012 revenue. Therefore, the media has constantly speculated what Apple's next great product will be -- a smartwatch, a smart TV, or something completely different.

Samsung hasn't fared much better, and has been far less focused than Apple. Samsung released a series of Internet enabled smart televisions in a pre-emptive strike against an Apple smart TV that never arrived. It tried to pre-empt Nokia's Lumia 1020's massive 41-megapixel camera with the bizarre 16-megapixel Galaxy S4 Zoom, a phone that resembles a digital camera more than a phone. It rolled out a new, bigger phablet, the 5.7-inch Galaxy Note 3, to address the demand for bigger smartphones.

Galaxy Gear -- a byproduct of desperation
That brings us to Samsung's Galaxy Gear, the blocky smartwatch that Samsung revealed on September 4 in Berlin. Like existing smartwatches, the Gear can receive mobile notifications and control music playback, but it also includes a 1.9-megapixel camera, a speaker, and microphones -- which makes it a wearable camera as well.

Source: Samsungmobilepress.com

However, the Galaxy Gear was criticized for two reasons -- its hefty price tag of $299 and its exclusive compatibility with Samsung Galaxy mobile devices. These two factors severely limit its appeal in comparison to cheaper products, like the $150 Pebble, which is compatible with both Android and iOS devices.

Qualcomm Toq -- innovation over desperation
Qualcomm's new Toq smartwatch, on the other hand, also costs $300, but the world's largest manufacturer of wireless chips isn't counting on it to become a best-selling device.
 In fact, Qualcomm only expects to make "tens of thousands" of units.