Please ensure Javascript is enabled for purposes of website accessibility

Apple Makes a Splash in the Wearables Market

By Jamal Carnette, CFA - Sep 1, 2015 at 1:00PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

IDC's data brings good news for Apple.

Over the last few years, the "next big thing" in technology has been wearables. And, for the most part the key word in that term has been next, as wearables have failed to catch on in a meaningful way. According to research firm IDC, however, it seems as if the product line is now ready to shed the next label and form a legitimate market.

The wearables market grew 223% on a year-over-year basis last quarter, going from 5.6 million units shipped in Q2 2014 to 18.1 million this year's recently reported second quarter. In addition to strong growth among most existing participants, IDC's data found new entrants such as Apple (AAPL 4.08%) and Xiaomi added to the year-over-over growth figures. Here's how it breaks down:

Vendor

Q2 2015 Shipment Volume

Q2 2015 Market Share

2Q14 Shipment Volume

Q2 2014 Market Share

Q2 2015/Q2 2014 Growth

1. Fitbit

4.4

24.3%

1.7

30.4%

158.8%

2. Apple

3.6

19.9%

0

0%

--

3. Xiaomi

3.1

17.1%

0

0%

--

4. Garmin

0.7

3.9%

0.5

8.9%

40%

5. Samsung

0.6

3.3%

0.8

14.3%

(25%)

Others

5.7

31.5%

2.6

46.4%

119.2%

Total

18.1

100%

5.6

100%

223.2%

Source: IDC. Units shipped figures in millions.

Obviously, this is in a market in the early growth phase, marked by increased sales and shipments that outpace worldwide GDP growth and multiple new entrants. So conditions on the ground could quickly change, and look for Apple to continue to execute in the wearables market.

The Apple effect cannot be understated
For all participants, Apple's entrance into the market should be considered a double-edged sword. On one hand, the presence of a deep-pocketed, able competitor that Forbes ranks as the No. 1 brand could potentially steal market share from existing participants. However, according to IDC research manager Ramon Llamas, "[A]ny time Apple enters a new market, not only does it draw attention to itself, but to the market as a whole." Essentially, Apple's blessing a new product is akin to free marketing and product promotion.

And it appears Apple really dominated the wearables category where it counts. Although the preceding table uses a consolidated total, the wearables market is actually two distinct markets -- on one hand you have the basic wearables category that primarily includes fitness trackers and that can't run third-party apps. The leader in that category, and overall, continues to be Fitbit (FIT) with its lower-cost offerings.

However, IDC thinks the basic wearables category will continue to lose market share to smart wearables. And Apple is clearly the leader there: As senior research analyst Jitesh Ubrani remarked in the press release, "[A]bout two of every three smart wearables shipped this quarter was an Apple Watch."

Fitbit's conundrum
For Fitbit, this potentially presents a problem that's currently playing out in the smartphone markets. On one hand, the basic-wearables market should become a price-dependent one as the product faces substitutes from smart wearables and technology erodes first-mover advantages among basic wearables competitors.

And while it should be noted that Fitbit is in a better position than most low-end phone manufacturers, as it owns its "ecosystem" whereas most low-end phone vendors use Android's plug-in OS, singular-focused products are less ecosystem dependent -- so it's less of a differentiator.

To be fair to Fitbit, its recently released its second-quarter results displayed the opposite. The average-selling price per device increased from $63 in last year's corresponding quarter to $88 this quarter, as the company credited "new products" for the increase.

The company added new models during that timeframe -- a $150 MSRP Charge HR band and a $250 Surge GPS watch -- apparently betting consumers will continue to pay more for singular-focused devices. That's perhaps true if the market continues to expand, but IDC thinks a shift toward smart devices will happen. 

 

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Apple Inc. Stock Quote
Apple Inc.
AAPL
$149.64 (4.08%) $5.86
Fitbit, Inc. Stock Quote
Fitbit, Inc.
FIT

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
344%
 
S&P 500 Returns
120%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/28/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.