If Apple's (NASDAQ:AAPL) Watch succeeds, it could have a major affect on its business, becoming a key source of revenue growth, and -- perhaps more importantly -- a way to keep its customers tied to the iOS ecosystem.
But Apple won't be the only firm affected by its Watch: Garmin (NASDAQ:GRMN) -- the maker of GPS units -- could be devastated.
Although Garmin's core business remains dependent on automotive and personal navigators, most of the company's recent growth has centered around wearable technology -- more specifically, fitness-focused watches and bands. With Apple's Watch packing a number of fitness-related features, Garmin could be in for a tough time in the coming quarters.
Apple's fitness-focused Watch
One of Apple Watch's defining characteristics is its built-in heart rate monitor. That sensor, combined with an accelerometer, allows the Apple Watch to track its user's daily activity. A suite of bundled apps collect data, and encourage the owner to meet specific fitness goals.
A preloaded Activity App, for example, prompts the wearer to stand regularly, exercise frequently, and move often. The Workout App takes it a step further, offering detailed measurements of time, distance, calories burned, and pace for particular fitness routines.
Apple Watch requires a paired iPhone for many of its functions, and deposits the data it collects into the iPhone's Health app. If its an iPhone 6, the user will have yet another sensor to rely on -- a barometer tracks flights of stairs climbed.
Expect the focus on health to intensify
Apple is not the first smartwatch-maker to include a heart rate monitor, nor is it the first firm to design a suite of activity-tracking apps. Many of its competitors in the Android space have already announced (or released) smartwatches of their own, and most of them are just as fitness-focused.
Indeed, fitness-related features appear to be a key selling point of many smartwatches, including the Apple Watch. One of the most common criticisms leveled at smartwatches, in general, is that they do not offer much functionality beyond what a smartphone can already provide -- activity tracking, however, is an exception, and a key differentiator between smartwatches and smartphones.
In time, it seems likely that both Apple and its competitors will continue to innovate on their watches' fitness features, improving them dramatically in subsequent generations as a way to differentiate their products and make them attractive to consumers.
Garmin's wearables have seen impressive growth
There's certainly a market for fitness-focused smartwatches -- Garmin's recent performance is proof enough of that. Although the bulk of Garmin's revenue and profit comes from its GPS devices, its wearable category is rapidly emerging as an important part of Garmin's larger business.
Garmin sells a range of fitness watches and bands aimed at athletes of all stripes. Garmin's latest watch, the Fenix 2, is a $400 gadget that assists in a wide variety of fitness activities -- everything from running to biking to swimming. Garmin's Vivosmart band is considerably cheaper -- around $200 -- but much more limited.
Both products, and their predecessors, seem to be performing well -- when Garmin reported earnings in July, it noted that its fitness category saw annual sales growth of 79%. As a percentage of Garmin's business, its wearables now compose about 20% of its sales and 22% of its gross profit. That rapid growth may help to explain why Garmin -- whose core business, by management's own admission, is shrinking -- trades with a price-to-earnings ratio greater than 16.
Can Apple Watch and Garmin's products co-exist?
But Garmin's booming wearable business could be short lived if the Apple Watch catches on. With its focus on fitness and activity tracking, the Apple Watch and Garmin's wearables are clear competitors, and to a large extent, substitutes.
If Garmin's wearables persist, it will be because they are more focused than the Apple Watch. Although Apple's new gadget can handle calls and run third party apps, it isn't waterproof, and will need to be charged regularly. Garmin's offerings, in contrast, offer less features, but have considerably fewer shortcomings -- fully waterproof with batteries that can last for months.
Ultimately, the Apple Watch is unproven -- but like the iPhone slowly eroding the demand for its GPS units, the Apple Watch could eventually exert immense pressure on Garmin's fitness business.
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.