Please ensure Javascript is enabled for purposes of website accessibility

Google Buys Fossil's Smartwatch Tech, Is Definitely Building a Pixel Watch

By Evan Niu, CFA – Updated Apr 20, 2019 at 12:25AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The search giant is looking to accelerate its smartwatch road map in an effort to catch up to the competition.

Rumors have been swirling for the better part of two years that Alphabet (GOOG -1.24%) (GOOGL -1.02%) subsidiary Google was working on the development of a first-party smartwatch, which will presumably be named the Pixel Watch. Wear OS, previously known as Android Wear, has failed to make a dent in the smartwatch market, which is led by Apple and Fitbit (FIT). Many were hoping the mythical device would be unveiled at Google's fall product event, in part because prominent tech leaker Evan Blass predicted as much:

Alas, the Pixel Watch was nowhere to be seen at the event. Still, investors just got the clearest indication yet that Google is working on a smartwatch.

Buying smartwatch tech

Fossil (FOSL -0.83%) announced today that it is selling smartwatch technology to Google for $40 million. The agreement includes intellectual property (IP) that is currently under development at Fossil, and the accessory maker is throwing in an unspecified number of employees with the deal that will join Google, not unlike Google's $1.1 billion acquisition of the HTC team that had worked on the Pixel phone.

Collection of third-party Wear OS smartwatches

Third-party Wear OS devices. Image source: Google.

Fossil has been trying to pivot its watch business -- its largest segment, accounting for 80% of revenue in the third quarter -- to smartwatches, but with limited success. Watch revenue was down 12% that quarter, and smartwatches made up 18% of sales, according to CEO Kosta Kartsotis on the earnings call. Following other manufacturers moving away from Wear OS in recent years, Fossil is now the most prominent maker of Wear OS devices.

It's not clear what specific IP Google is acquiring, but Fossil notes that it still has over 200 R&D employees working on product development, so it's not as if Fossil is abandoning the platform. At the same time, it is the clearest evidence yet that Google is working on a smartwatch. There's no other reason to acquire smartwatch IP from a manufacturer.

The search giant's hardware business is booming (and profitable), but it's far behind in the smartwatch scene, and Pixel Watch is an obvious extension of the portfolio.

Playing catch-up

It's worth noting that Fitbit, currently the No. 2 player in smartwatches, accelerated its smartwatch strategy using three acquisitions: Coin, Vector, and Pebble. Fitbit has executed well in piecing those purchases together to create Fitbit OS, and the company's growing sales of smartwatches is driving Fitbit's turnaround.

Google has almost certainly already been hard at work developing a Pixel Watch, and ideally the tech giant will have something to unveil this year. Hopefully, that product will be compelling enough to bring more competition to the smartwatch space. Either way, the IP buy will accelerate its smartwatch road map going forward.

Check out the latest Alphabet earnings call transcript.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Evan Niu, CFA owns shares of AAPL. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), AAPL, and Fitbit. The Motley Fool has the following options: long January 2020 $150 calls on AAPL and short January 2020 $155 calls on AAPL. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Alphabet (C shares) Stock Quote
Alphabet (C shares)
GOOG
$97.60 (-1.24%) $-1.22
Alphabet (A shares) Stock Quote
Alphabet (A shares)
GOOGL
$97.46 (-1.02%) $-1.00
Fossil Group Stock Quote
Fossil Group
FOSL
$4.79 (-0.83%) $0.04
Fitbit Stock Quote
Fitbit
FIT

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
356%
 
S&P 500 Returns
118%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 11/27/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.