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What Happens With Apple Inc.'s Watch Now?

By Tim Brugger - Apr 6, 2016 at 2:12PM

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Despite all the rumors, the iEverything maker didn’t unveil a new smartwatch model at its recent event.

At first glance, 2015 would appear to have been a banner year for Apple (AAPL -0.57%) and its much ballyhooed Apple Watch. Unveiled that April, the Apple Watch ended 2015 commanding an estimated 52% of the smartwatch market. Apple doesn't break out the Watch's sales specifics, but CEO Tim Cook did mention it as one of the drivers of last quarter's record revenues and profits. Of course, how much of that was CEO-speak and how much was actually true is anyone's guess.

According to estimates from research firm IDC, Apple sold 4.1 million Watches in the fourth quarter, making it the clear leader in smartwatch sales. The not-so-smart fitness bands from industry leader Fitbit (FIT) led the wearables pack in Q4, with 8.1 million devices sold -- nearly twice as many as the Watch. But the smartwatch market was expected to explode this year thanks to Apple unveiling its new Watch iteration last month. But now that Apple's event has come and gone with little more than a couple of minor "tweaks" to the Watch, what's the future for the device?

Image courtesy of Apple.

Did you forget something?
Apple quickly took the lead in smartwatch sales, but there's a bit more to the story than market share. By virtually all accounts, smartwatches were supposed to be the next, big thing. According to Gartner (NYSE: IT), there were 30.32 million smartwatches sold worldwide  in 2015. That's a bit higher than estimates from IDC, but in the same ballpark. Those figures are supposed to climb to over 50 million this year. But that could change for the worse, in part thanks to Apple.

Rumors of significant updates to the Watch were already swirling heading into last month's Apple event, and had been for a couple of months . But the scuttlebutt really took off when Apple announced it was shaving $100 off its $600 price -- give or take, depending on the model -- shortly before its big show. Apple's Watch has such panache, rumors of a new and improved device were likely behind some pundits' sky high sales estimates for this year.

Alas, what iFans got, beyond the lower price, was nothing more than a few new Watch bands.

Hurdles remain
Fitbit's success speaks to consumers' desire for health monitoring devices, and so far smartwatches simply haven't differentiated themselves enough to warrant the hoopla, let alone their significantly higher prices. Encouraging a greater number of mainstream consumers to get aboard the smartwatch train was what a Watch 2.0 was supposed to have accomplished. But with no truly new Watch in sight, 2016 could prove as underwhelming for smartwatch sales as 2015 was.

Despite Apple's dominant market share, the lack of any Watch upgrades doesn't bode well for what one pundit describes as "a category waiting for a market." So far, most consumers seem content with the Fitbits of the world, and smartwatches are -- for now -- likely to remain a category in search of buyers.

A new Watch would have also allayed some investors' fears as Apple heads toward what is expected to be the first ever year-over-year sales decline for its wildly popular iPhone. More than two-thirds of Apple's revenue was derived from iPhone sales last quarter. Though the introduction of an updated Watch last month would not have resulted in the level of impact that a new smartphone can have on Apple's bottom line, it would have given investors a glimmer of hope that there were revenue diversification opportunities going forward. Perhaps that could have been the impetus Apple shareholders need to boost its meandering stock price.

If smartwatches are indeed a "category waiting for a market," 2016 will be a telling year for Apple. If Fitbit continues to dominate the market this year, consumers will have made their point loud and clear: Smartwatches remain a niche product. Unfortunately for iFans, until Apple develops a smartwatch that truly differentiates itself, what we'll see from the Watch is a device that controls a solid piece of market share, but makes little impact.

 

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