Apple Is Dominating the Watch Game
In the burgeoning smartwatch market, Apple (AAPL - Get Report) is leaving competitors in the dust.
That's according to Strategy Analytics research, which found that the Apple Watch commandeered 46% of the smartwatch market in the second quarter, followed by Samsung at a distant second (16%) and Fitbit (FIT - Get Report) at 10%.
"Apple is the runaway smartwatch market leader because it currently offers the most user-friendly devices, the broadest store of apps, the deepest retail channels for wearables, and an affluent customer base that is keen to accessorize their iPhones with new gadgets," said Neil Mawston of Strategy Analytics. The analyst projects that Apple will sell billions of dollars of watches this year.
Apple shares were little changed in Monday trading and are up 27% this year. Fitbit stock, by contrast, on Aug. 1 dropped 20% after posting weak sales and slashing revenue guidance.
Enthusiasm around Apple's wearables business was apparent in Apple's recent earnings report, in which CEO Tim Cook told investors that growth in wearables, which includes both the watch and AirPods, was "well over 50%."
"We stuck with [wearables] when others perhaps didn't," Cook told analysts on a call, noting that 75% of customers who bought an Apple Watch last quarter were buying their first ones.
Along with services, Apple's wearables business was named as a top contributor to growth in Apple's top line, which came in at $53.8 billion for the quarter.
With Apple gradually steering away from iPhone unit sales as its lifeblood, wearables are looking like a strong contender to boost Apple's overall sales profile.
The market is growing at a strong clip overall, with 44% growth in global smartwatch sales last quarter according to Strategy Analytics. And while it may not go unchallenged forever -- Alphabet (GOOG - Get Report) is expected to release a Pixel Watch in the coming months, and Samsung's (SSNLF) market share jumped to 16% from 11% last quarter -- Apple's large installed base and robust app ecosystem is likely to keep users in the fold.
The independent Apple analyst Neil Cybart of Above Avalon estimated that one of every five gadgets Apple sells is now a wearable device, and that the category has an annual run rate of $16 billion this year.
"At the current pace, wearables will surpass both the iPad and Mac near the end of 2020 to become the third largest product category behind iPhone and Services when looking at revenue," Cybart wrote.
Investors who pay close attention to Apple's history with device sales likely feel pretty good about this development. As unit sales of the Apple Watch and other wearables have increased, so have the prices with successive versions -- meaning higher average selling prices as Apple introduces new models.
The Apple Watch Series 4 ranges from $399 to $799; the first version released in 2015 started at $349.
Wearables also boast stronger margins than Apple's other hardware products, meaning more sales will also help to boost Apple's profit over time.
"Wearables also have a higher margin profile than the rest of their hardware businesses," CFRA's Angelo Zino explained earlier this month.
"As you see greater representation of wearables over time, alongside services, that will continue to benefit the company."
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