It doesn't look like Samsung (NASDAQOTH:SSNLF) will be selling many Galaxy Gear smartwatches. Early previews of the device have not been kind, and given that it costs $300 and will only work with a single phone (at launch), it was already a tough sell.
That's distressing for Samsung, a company that's in desperate need of a new hit device to reignite growth.
The Galaxy Gear falls flat
Samsung's watch does just about everything you'd expect it to do -- it runs apps, it shows incoming messages, it takes pictures, and it allows for voice commands. Unfortunately, it doesn't sound like it does any of this particularly well.
The Verge, in its hands-on preview, bemoaned the Gear's interface and general processing speed:
[The] speed and intuitiveness of the user interface — or rather, the lack thereof. There's a tangible lag to anything you do with the Gear, while the swipe gestures are hard to figure out and do different things depending on where you are in the menus...the speaker built into the buckle is too quiet and makes the old sci-fi action of conducting a phone call via your watch a possibility only in quiet areas...Most of all, however, I find it hard to justify spending the $299 asking price on an accessory like the Galaxy Gear.
Mashable had a similar take:
The performance of the device...is somewhat lacking...we'd like to see snappier reactions to our taps...The Gear is priced at $299. It's too early to tell, but for that amount of money, the Gear feels just a little bit unpolished.
As did Engadget:
The Gear feels awfully sluggish, whether you're launching an app...or swiping down from the home screen to activate the camera...The Gear is very much a first-generation device when it comes to usability, too; you can only load a total of 10 third-party apps, for example...The interface also feels a bit clunky and unpolished at times...As we've come to expect with many first-generation devices, the Gear has quite a few shortcomings, some of which likely have yet to come to light.
A crisis brewing at Samsung?
The Galaxy Gear is just one of countless devices produced by Samsung -- the Korean tech giant makes everything from smartphones to tablets to washing machines, refrigerators, and TVs (if it runs on electrical power, there's a good chance Samsung makes it). So this device, by itself, isn't going to make or break the company by any means.
But there is a bit of a crisis brewing at Samsung. As with Apple (NASDAQ:AAPL), investors are getting concerned that Samsung's rapid growth could be coming to a standstill. Samsung shares plunged after the company's recent earnings report -- although operating profit was up almost 50% from the prior year, Samsung's mobile division shrunk on a quarter-over-quarter basis.
Samsung's management has gone so far as to announce a special meeting in November, intended to lay out the company's long-term strategy and alleviate investors' growing concerns.
But Samsung has one problem that Apple doesn't have: inter-ecosystem competition. Android owners looking to buy a smartwatch this fall have at least two choices. Besides the Galaxy Gear, Sony's (NYSE:SNE) SmartWatch 2 is set to go on sale at the end of September.
The SmartWatch 2 is about $40 cheaper, but it does lack some major functionality; most notably (unlike the Galaxy Gear), it can't take pictures and it doesn't have a microphone. But it does work with nearly all Android phones. Initially, Samsung's Galaxy Gear will only work with the recently unveiled Note III. Samsung has said it will expand that capability to other Galaxy phones and eventually, other Android phones, but who knows how long that could take.
The larger point is that Sony is committed to making Android-based watches for the long-haul. As its name implies, the SmartWatch 2 is the Japanese electronics giant's second attempt (the first one wasn't well received). Come next year, the SmartWatch 3 could be far superior to Samsung's Galaxy Gear.
Of course, Sony is challenging Samsung in all mobile areas. Sony's new Xperia tablets and smartphones have been well received; the company just recently released a phablet, and new tablets are likely to follow. All of these devices run Android, meaning that loyal Samsung customers, locked into the Android ecosystem, can quite easily jump ship.
The coming iWatch
Apple won't have to worry about competition from Sony, or any other major electronics firm. Other than indie projects like the Pebble, Apple's iWatch will very likely be the only smartwatch to interface with iOS devices.
Apple's management has never officially acknowledged the existence of a watch, but various reports have indicated that the King of Cupertino has one in the pipeline. As with Samsung, fears about smartphone saturation have weighed on Apple's shares, but a hot new device could change that.
And Apple could benefit more from its watch than Samsung. Assuming it's priced competitively, a customer who slaps down $300 for an iWatch would be unlikely to leave the iOS ecosystem (less their expensive watch become worthless). If Samsung does as it says and makes its watch work with other Android phones, customers can buy the Galaxy Gear in October and then switch to a different phone manufacturer at a future date.
With its high price tag, limited connectivity, and poor reviews, the Galaxy Gear isn't likely to sell particularly well; and that, coupled with a smartphone market that's seemingly saturated, might not bode particularly well for Samsung's investors in the near term.
Longer term, Samsung has to contend with other Android OEMs such as Sony. Samsung's rival Apple doesn't have to worry about that, as it maintains full control over its iOS mobile operating system.
To be sure, Samsung is an enormous and complex company. But with its mobile division making up the bulk of its earnings and accounting for most of its recent growth, Samsung's best days might be behind it.
Sam Mattera has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.