Apple Watch is Apple's first foray into wearable computing. Although it offers many features that may make it attractive to potential buyers, its health tracking capabilities are among its most appealing aspects. Using the Health app on their paired iPhone, Apple Watch owners will be able to monitor and record their activity throughout the day.
That makes it a strong substitute to Garmin's fitness trackers, which make up an increasingly sizable portion of the GPS giant's revenue. There's no guarantee Apple Watch will be a hit, but if it catches on, Garmin shareholders could suffer.
Apple takes on fitness tracking market
Apple Watch is much more than a fitness tracker, but fitness tracking is a key component of the device. On Apple's website, it lists "Health and Fitness" as one of the three cornerstones of its appeal (along with Timekeeping and New Ways to Connect).
Apple has partnered with superstar model Christy Turlington Burns to promote the device. To emphasize its capabilities, Apple showed Turlington Burns running a marathon while wearing Apple Watch at its event earlier this month.
Prior to the Apple Watch's unveiling, it was rumored to have as many as 10 fitness-related sensors. According to The Wall Street Journal, most of these sensors -- which could have tracked a variety of different vital signs, including blood pressure and stress levels -- were dropped; the first generation Apple Watch will ship with just a heart rate monitor and accelerator. But it's easy to imagine Apple adding them in future revisions.
The importance of fitness bands to Garmin's success
At the same time, fitness is increasingly important to Garmin. GPS units -- both personal navigators and systems installed in automobiles -- still compose the bulk of the company's revenue, but Garmin's fitness trackers (which include a variety of tracking bands and watches) are quickly catching up.
Last quarter, Garmin's fitness trackers brought in roughly one-quarter of the company's revenue, and represented the overwhelming majority of its growth. While Garmin's GPS business continues to experience steady annual declines, demand for its fitness gadgets has been incredible -- in the fourth quarter, sales of fitness devices rose 70% on an annual basis.
Apple is coming for another part of Garmin's business
If Apple Watch catches on, much of that revenue, and all of that momentum, could be lost. Given its fitness capabilities, it's difficult to imagine that owners of Apple Watches will buy many fitness trackers -- from Garmin, or from anyone else.
Garmin's fitness gadgets have many advantages over Apple Watch -- price notwithstanding. The battery in Garmin's tracking band, the Garmin Vivofit, lasts for an entire year -- Apple Watch barely lasts one day. Garmin's Forerunner 310XT is waterproof -- fully submersible, and with far greater capabilities, including support for GPS tracking and programmed workouts. But compared to the first generation iPhone, the iPhone 6 is far more advanced. In seven years, Apple improved the device massively, and the Apple Watch should follow a similar trajectory.
Of course, the Apple Watch could disappoint. Starting at $349, it's certainly expensive, and its functions are severely limited without a paired iPhone. But it's clear where Apple's ambitions lie. Earlier this month, it pulled a variety of fitness tracking gadgets from its stores, including some from those of Garmin's fitness competitor, Jawbone.
Apple's maps-equipped iPhone started the shift away from Garmin's traditional, dedicated GPS units. Its fitness-focused Watch could be about to pressure another portion of Garmin's business.