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Rivals Chipped Away at Apple's Smartwatch Dominance in Q1

By Evan Niu, CFA – Jun 18, 2020 at 10:00AM

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AirPods also cannibalized Apple Watch sales.

Apple (AAPL -3.00%) has long been the clear leader in the smartwatch industry with its popular Apple Watch. However, data released this week by market researcher Canalys suggests that rivals are starting to make progress in chipping away at the Mac maker's market share, even as the broader smartwatch market was able to squeeze out decent growth in the first quarter despite the COVID-19 pandemic.

Here's what investors need to know.

Close-up of hand gripping bicycle handlebar, with a pink Apple Watch around the wearer's wrist

Image source: Apple.

Apple still has a comfortable lead

Total smartwatch shipments grew 12% in Q1 to reach 14.3 million. Apple still leads the way by a healthy margin, shipping an estimated 5.2 million Apple Watches during the quarter. However, the Cupertino tech giant's unit volumes fell 13% compared to a year ago while the market grew, leading to market share losses. Still, Canalys expects Apple to hit a major milestone in the second quarter: 100 million lifetime Apple Watch shipments.

Vendor

Q1 2020 Shipments

Q1 2020 Market Share

Growth (YOY)

Apple

5.2 million

36.3%

(13%)

Huawei

2.1 million

14.9%

113%

Samsung

1.8 million

12.4%

46%

Garmin

1.1 million

7.3%

39%

Fitbit

900,000

6.2%

(21%)

Others

3.3 million

22.8%

24%

Total

14.3 million

100%

12%

Data source: Canalys. YOY = year over year.

The Apple Watch installed base is now estimated at around 70 million, according to Canalys, after gaining 4 million new users during the quarter. That proportion of new users is mostly in line with recent comments from management. CEO Tim Cook and CFO Luca Maestri have noted on the recent earnings calls that over 75% of Apple Watch buyers were new to the wearable gadget for each of the past two quarters.

Demand for AirPods may have slightly cannibalized Apple Watch sales in developed markets, though. "Strong overseas demand for smartwatches helped offset the Apple Watch's slow performance in Europe and North America, which was due to Apple customers switching their attention to AirPods as a 'must-have' accessory," said Canalys analyst Vincent Thielke.

Huawei was able to expand its position by bundling its latest Huawei Watch GT 2e with its newest P40 flagship smartphone, while Samsung and Garmin were able to grow shipments into Europe and North America. Fitbit, which is in the process of being acquired by Alphabet subsidiary Google, continues to struggle. The company last month reported a nearly 25% drop in devices sold (including smartwatches and basic fitness trackers) in the first quarter.

Cellular smartwatches are proving to be popular in China, which celebrated the Lunar New Year during the quarter. The Middle Kingdom is now the largest market for cellular smartwatches.

Canalys analyst Cynthia Chen added, "We expect China will be the key smartwatch growth driver in 2020 as a result of its strongly recovered economy and a greater push from local players, including Huawei, Xiaomi and newcomer Oppo."

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Evan Niu, CFA owns shares of Apple. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Apple, and Fitbit. The Motley Fool has a disclosure policy.

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