Motley Fool
0
All posts from Motley Fool
Motley Fool in Motley Fool,

Don't Bury the Apple Watch — It's Not Dead Yet

Image source: Apple. 

It's apparently a rough sophomore season for Apple's (NASDAQ: AAPL) smartwatch. Tech tracker IDC published fresh data on shipment trends this week. It's not pretty on the surface, but dig deeper, and it's not as scary as the headline numbers seem to suggest. 

IDC's press release kicks off by pointing out that the nascent smartwatch industry experienced its first year-over-year decline in shipments during the second quarter. Just 3.5 million units shipped across all vendors during the last three months, well below the 5.1 million smartwatches that were manufactured and shipped during last year's second quarter.

The more troubling nugget -- again, solely if we stick to licking the caramelized sugar top of this creme brulee treat -- is that Apple's share of the market has fallen significantly. Apple accounted for 3.6 million units a year earlier, gobbling up 72% of the smartwatch market. It was just 1.6 million this time around. That's less than half of the market. 

There's nothing as scary as a thinning slice of a thinning pie; but let's not mix our desserts. We were on a creme brulee before. Let's crack through the hardened sugar shell to get to the custard. 

Comparing Apples to oranges

IDC pointing out that Apple Watch shipments have plunged 55% over the past year is troublesome -- until you realize that the head-turning smartwatch came out during the second quarter of last year. Apple began taking orders in mid-April after months of hype. Of course it was going receive millions of orders as Apple's shiny new toy, and naturally, the comparisons got that much harder when there wasn't a game-changing update to the platform during this past quarter.

This isn't all that different than buying into Apple's declining financial performance in fiscal 2016 as a result of the one-time spike in fiscal 2015 when the larger iPhone 6 and iPhone 6 Plus breathed new life into the class of act of Cupertino's flagship product. Set aside the one-time blip, and the comparisons get kinder.

Looking beyond Apple, we see that the next four largest vendors -- Samsung, Lenovo, LG, and Garmin (NASDAQ: GRMN) -- all saw their numbers rise. I'm not talking about market share, a metric where it's easy to look good when the top dog sees its shipments shaved by more than half. Samsung, Lenovo, LG, and Garmin all shipped more units, according to IDC, than they did during the months of April, May, and June last year. This certainly doesn't seem like a niche that's fading anytime soon.

Fitbit (NYSE: FIT) investors will also be quick to point out that the numbers don't include the performance of Fitbit Blaze. Fitbit introduced Blaze earlier this year, calling it the fitness tracker leader's first foray into the smartwatch market. However, IDC doesn't classify Fitbit Blaze as a smartwatch because it doesn't run third-party apps.

Fitbit's market team may have a beef with being left out of the smartwatch category, but the only reason I bring this up is because Fitbit shipped more than a million of its Fitbit Blaze devices during this year's first quarter. A lot of people think they're buying smartwatches.

Time after time

This may seem like bad timing for Apple. It reports quarterly results after Tuesday's market close, and now we see a respected industry watcher forecasting a sharp year-over-year slide in Apple Watch sales. That may be true, but Apple Watch is still not a needle mover at Apple. It's all about the iPhone these days at Apple -- at least as far as the product line that's driving the lion's share of its current business.

We know that Apple Watch will get better. Apple offered a glimpse last month of some of the features of its watchOS3 operating system update that will roll out in the fall. It will be more social as a result of the ability to share activity data with friends. Other enhancements, including specialized tracking for wearers confined to wheelchairs and the new Breathe app that will encourage deep breathing and relaxation exercises, may serve limited markets, but it will make those potential buyers more likely to buy an Apple Watch.

All of this will likely coincide with the next-gen Apple Watch rolling out later this year. It will be then that we can truly begin to assess if the market has tired of the Apple Watch. We know that it's not tiring on smartwatches, in general, if we account for the novelty spike for Apple a year earlier. 

Keep your spoon handy. There's still a lot of creme brulee to go around.

A secret billion-dollar stock opportunity
The world's biggest tech company forgot to show you something, but a few Wall Street analysts and the Fool didn't miss a beat: There's a small company that's powering their brand-new gadgets and the coming revolution in technology. And we think its stock price has nearly unlimited room to run for early in-the-know investors! To be one of them, just click here.

Rick Munarriz owns shares of Apple. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. The Motley Fool recommends Fitbit. 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.