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Apple Watch Drives Wearables Surge in North America in Q2

By Evan Niu, CFA – Aug 16, 2019 at 1:45PM

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Total wearables shipments jumped 38% to 7.7 million.

Market researcher Canalys has released new estimates on the wearables market, and they show that the wearables market in North America hit $2 billion in revenue in the second quarter. That's an important milestone and made possible by a 38% jump in total shipments to 7.7 million units in the region. The main growth driver continues to be soaring smartwatch sales, a category led by Apple (AAPL -1.51%), with Fitbit (FIT) maintaining its No. 2 position.

Canalys also provided some insight into other trends playing out in the smartwatch market.

Apple Watch Series 4

Image source: Apple.

Mainstream prices are spurring demand

North America is the biggest wearable band market in terms of revenue, even as China has greater unit volumes. The bulk of China's volumes consists of low-cost basic fitness trackers. North America represents an estimated 60% of Apple Watch shipments, according to Canalys, with Apple shipping a total of 4.7 million smartwatches during the quarter.

Smartwatch vendors are now focusing their efforts on addressing the $200 to $299 price segment of the market, which represented nearly a third of the North American market. Samsung's Galaxy Watch Active series is gaining traction in that segment, and Apple still participates there with its previous-generation Apple Watch Series 3. The next largest slice is the $300 to $399 segment, which grabbed 28% of shipments. The newer Apple Watch Series 4 starts at $399.

Fitbit mostly plays in the $100 to $199 part of the market with its Versa. The original Versa has sold well, but the newer Versa Lite flopped upon release as the company realized consumers preferred to shop for discounted Versas that have more features. Recent rumors suggest a second-generation Versa may launch next month, which would be about 18 months after the first-generation model was released.

"In addition, we're accelerating our hardware product development cadence for an annual cycle," Fitbit CEO James Park said on the last earnings call. "This will not only enable us to adapt faster to changing market conditions, it should make our business more predictable on a year-over-year basis since new product introductions comprise the majority of our sales."

"There is certainly demand for affordable smartwatches with strong health and other intelligent features, but Fitbit's misstep with the Versa Lite shows that consumers will shun overly pared-down smartwatches if they are not appropriately targeted, and especially when it's obvious they are losing functionality," Canalys analyst Vincent Thielke said in a statement.

Cellular connectivity has proven to be a strong selling point, and Apple has "been laying down robust groundwork for cellular-connected devices," according to Canalys analyst Jason Low. The Cupertino tech giant first included 4G LTE in 2017 with the Apple Watch Series 3, and has been working to untether its smartwatch from the iPhone by leveraging that connectivity.

Evan Niu, CFA owns shares of Apple. The Motley Fool owns shares of and recommends Apple and Fitbit. The Motley Fool has the following options: short January 2020 $155 calls on Apple and long January 2020 $150 calls on Apple. The Motley Fool has a disclosure policy.

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