Innovation

Why smartwatch sales are experiencing a 'nuclear winter'

Is the current slump in smartwatch sales an indicator that the devices are becoming obsolete, or just a temporary lull?

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Image: CNET

Smartwatch shipments have significantly dropped for the first time, but it's not necessarily a sign that the category has hit a permanent slump, according to analysts.

The International Data Corporation (IDC) reported that during the second quarter of 2016, sales of smartwatches dropped 32% compared to the same period a year earlier. Sales dropped from 5.1 million units in the second quarter of 2015 to 3.5 million units during the second quarter of 2016. Most of this loss was attributed to Apple, which saw the biggest drop, selling 55% fewer devices during this period.

"We're in a bit of a nuclear winter with wearable devices in that a lot of people have gone out and owned one by now. We've seen abandonment rates remain pretty much constant since we started tracking them in 2013. That's because there are a few pockets of people who genuinely benefit from these products, but they don't have a universal market value proposition like a smartphone does," said Dan Ledger, principal with Endeavour Partners.

SEE: Smartwatch shipments fall 32 percent in Q2, Apple leads category downdraft (ZDNet)

Despite the sharp drop for Apple, it still sold the most units during the second quarter of 2016 with 1.6 million devices shipped. Coming in second was Samsung, which grew from a total of 400,000 units in the second quarter of 2015 to 600,000 units in the same period in 2016. Lenovo ranked third in total sales and experienced growth as well, from 200,000 to 300,000 units during the same period.

IDC considers a smartwatch a device capable of running third-party apps, including the Apple Watch, the Moto 360, and the Gear S2. The Fitbit Blaze and the Withings Activite are not categorized as smartwatches by IDC.

As noted, the Apple Watch is to blame for the slump in sales. It debuted in the second quarter of 2015, and hasn't yet introduced an updated version.

Brendan McCue, an analyst for NextWorth, said, "it's a perfect storm in that this is a point in the Apple sales cycle that is unprecedented...this is the longest Apple has gone without a product refresh. It's been about 15-16 months of just the first generation Apple Watch."

Ramon Llamas, research manager for wearables and mobile phones for IDC, said, "If you're the market leader and you're not updating, you're going to see this dip. At the same time, take a look at the other vendors up and down that list who are posting double-digit gains year after year. That gives me hope. That tells me that there is some interest going on over here."

The Apple Watch is a first generation product, whereas Samsung and Pebble have introduced several new versions already. Once Apple releases a new version, sales are likely to rise again if new apps become available, Llamas said.

Apple introduced the latest watchOS at WWDC this year and that points to a new device coming soon, as previously reported by TechRepublic.

Ledger agreed that apps are key. "A Samsung Gear 2 connected watch with a certain app on it developed by a company like APX could have a lot of value. These are typically remote workforces or people out and about, not in front of a computer."

He added that the class of devices that will be most in demand will be untethered models, such as the new Pebble smartwatch that has a chip that is clipped onto a belt with a 3G modem to use to facilitate calls.

"We are in the early days of a class of products here that are going to be unrecognizable in a decade," Ledger said.

Llamas said, "if there's anything I can say, it's to practice patience. Eventually, we're going to get past this lull. Eventually we're going to look back from 2018 at the watches of today and say, 'weren't those things just the quaintest things you've ever seen.' That's what we do with iPads released three years ago or iPhones released five years ago."

Three takeaways for TechRepublic readers

  1. Smartwatch sales dropped 32% overall in the second quarter of 2016 compared to last year, but it doesn't mean that smartwatches are a dying category of wearables.
  2. New apps and an updated model are needed to drive users back to the Apple Watch, which experienced a 55% drop in sales compared to last year.
  3. Untethered smartwatches will create new opportunities to increase sales for manufacturers, and analysts believe that we are still only in the early days of this product category.

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About Teena Maddox

Teena Maddox is a Senior Writer at TechRepublic, covering hardware devices, IoT, smart cities and wearables. She ties together the style and substance of tech. Teena has spent 20-plus years writing business and features for publications including Peo...

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