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Apple smartwatch hype to shake supply chain

Posted: 15 Sep 2014 ?? ?Print Version ?Bookmark and Share

Keywords:Apple smartwatch? wearable? OEMs?

The buzz created by the new Apple Watch could mean a great deal for many players in the smartwatch game. Apple CEO Tim Cook's presentation earlier this week have not revealed anything revolutionary about the tech giant's first wearable device, yet the Watch's release next year is still expected to shake up the electronics sector's supply chain.

Apple is not the first to come up with a smartwatch, but its foray into the wearables market brings smartwatches to a broader scope of audiences. In turn, this could lead to a reduced cost and increased availability of the components involved in the making of a smartwatch.

This means that there will be more opportunities for many non-Apple fans to venture out of the California-based tech giant for their technology.

Higher demand leads to supply price drop
Smartwatch volume sales worldwide will surge to 60 million units in 2015 compared to a total of 12 million units that are expected to be sold in 2014, according to the Smartwatch Group. Apple is expected to sell a whopping 30 million units and have a market share of 50 per cent out of the 60 million volume sales total next year. This compares to Samsung's 20 per cent share in 2014 and 10 per cent to 15 per cent market share in 2015, the analysts predict.

If Apple does indeed see volumes of this scale with its smartwatch, OEMs stand to benefit. More suppliers are expected to rush to market to meet demand, and in doing so, of course, will collectively produce larger volumes of components. This should result in a per-component price drop by 20 per cent by the end of next year, according to the Smartwatch Group.

However, the total cost of production per device will remain about the same next year compared to 2014 as OEMs must add GPS, Bluetooth, high-end apps, and other features to remain competitive, Pascal Koenig, the managing director of the Smartwatch Group, told EBN.

"Component prices are going down, but there are more and more components inside smartwatches," Koenig said. "Most smartwatches are still dependent on smartphones, but they will eventually have to stand alone. But to do that, you need better antennas, better power management, and better everything."

But while the smartwatch barrier to entry will rise, the opportunities will become bigger as well. Those OEMs that are able to recruit the creative talent to develop a winning combination of smartwatch functionality and fashion into something consumers will want stand to win big, Koenig said. The Apple Watch has already done this and is thus expected to see very significant volume sales, he said.

"Smartwatches are like many wearable tech productsat the end of the day, it is not the absolute best product that is going to win, but it will be the one that end-user customers will want to wear," Koenig said.

So far, of course, Samsung, Google, and other players that have already launched smartwatches have yet to see significant volumes, while Apple is hoping to become the first successful player in the sector. It also seeks to reach consumers in a way that defines the sector as it has done with its iPod, iPhone, and iPad.

But the prospects of whether the Apple Watch will indeed be able to redefine and help to create a new market like it did with MP3 players, smartphones, and tablets is not completely clear cut.

"This is a competitive market and none of the existing solutions have yet taken off. I am doubtful that the market will develop in the same way as iPods and MP3 players did, for example," Greg Caressi, a Frost and Sullivan senior vice president of healthcare and life sciences, told EBN. "The key question is, do these devices really hit a consumer pain point the way individualizing music did, or are smartwatches just a smaller version of a smartphone in the consumers' eyes?"

The best is yet to come?

Feature-wise, the Apple Watch offers some arguably interesting apps in a watch form factor. They include being able to draw and send images by hand and even send your "heartbeat." It also offers very iPhone-like apps by allowing you to pay for coffee, board a plane, use as a TV remote control, or to get directions. These are hardly advanced features, especially compared to smartphones, yet much of the yet-to-be revealed potential of the Apple Watch is for healthcare-related apps.

For the time being, Apple Watch's healthcare features remain limited to measuring heart rate, calories burned, and how often the user is standing or sitting or lying down. Healthcare features that smartwatches from Samsung and other OEMs remain comparably limited as well. But by 2020, Apple's device and other smartwatches are expected to offer blood pressure, glucose monitoring, and other more comprehensive health monitoring and tracking. A key selling point is that they will offer health monitoring capabilities in non-intrusive ways that combine elements of fashion and technology.

Healthcare professionals insist that devices worn on the wrist are not as accurate for detecting heart rate and other cardio-related metrics and are ideally worn closer to the heart. But consumers instead generally seek a compromise between the best technology and what they want to attach to their bodies. "Nobody really wants to wear a device around their chest and everybody is used to wearing a watch," Koenig said.

For healthcare, Apple will need to create an ecosystem of applications "that drive new solutions and new value propositions for users of various types," like it did with the iPod, iPhone, and iPad, Caressi said. "From a healthcare perspective, what they are addressing could be described as combining a wearable fitness device with smartphone capabilities," Caressi said. "Does this value proposition go beyond the early adopters to the mass market? I think this is a real question."

- Bruce Gain

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