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Can Apple Crack the Smartwatch Code? Company Takes On Rivals Google and Samsung With Wrist Device to Launch Later This Year

Can Apple Crack the Smartwatch Code?

Company Takes On Rivals Google and Samsung With Wrist Device to Launch Later This Year

DAISUKE WAKABAYASHI, EVA DOU and LORRAINE LUK

Updated June 20, 2014 7:34 p.m. ET

Apple is planning multiple versions of its smartwatch, likely to be launched in the fall, people familiar with the matter said, as the company tries to counter wearable devices from rivals such as Google and Samsung. George Stahl joins Michael Casey to discuss. Photo: Getty

Apple Inc. AAPL -1.03% is ready to join Google Inc., GOOG +0.26% Samsung Electronics Co. 005930.SE -1.66% and a host of startups making smartwatches and, potentially, other wearable computing devices.

But it isn’t clear how much consumers want the devices. Those on the market so far haven’t sold well, because most wearable devices only offer a limited set of features already found on a smartphone.

Apple is planning multiple versions of a smartwatch—dubbed the iWatch in the media—later this year, according to people familiar with the matter. The devices will include more than 10 sensors to track and monitor health and fitness data, these people said. Taiwanese manufacturer Quanta Computer Inc.2382.TW -0.60% is expected to start producing the devices in two to three months, they said.

As growth in smartphones and tablet computers slows, Apple and others are considering wearable devices as an enticing new market. Smaller sensors, flexible screens and ubiquitous wireless connectivity have the potential to usher in a new era of computing where all devices will become “smart,” collecting and processing data from daily life.

So far, that hasn’t led to big sales. World-wide shipments of wearable devices—including smartwatches and activity trackers—totaled about 2.9 million units in the first quarter, according to ABI Research. That is about 1% of the 300 million smartphones shipped during the same period. Apple said it alone sold 43.7 million iPhones in that quarter.

Some industry watchers think Apple, with its record of success in defining new product segments with the iPhone and iPad, will crack the code.

Apple’s ability to design both hardware and software gives it a leg up on competitors because it can present a cohesive vision for a new product, said Nick Spencer, an analyst at ABI Research.

A person at one of Apple’s component suppliers said the Cupertino, Calif., company expects to ship 10 million to 15 million smartwatches this year. By comparison, Apple sold 1.1 million iPhones in the first quarter it was available in 2007.

“We haven’t really seen the big players come out with their best shot,” said J.P. Gownder, an analyst at Forrester Research. “No one has done anything completely serious.”

Apple spokeswoman Natalie Kerris declined to comment.

Tim Cook, Apple’s chief executive who has pledged to push the company into new product segments later this year, has expressed interest in wearable devices and sees it as an area worth exploring.

“There are lots of gadgets in this space right now, but there’s nothing great out there,” Mr. Cook said at a conference last year. “There are a lot of problems to solve in this space.”

The new details of Apple’s plans come ahead of Google’s I/O conference for developers next week in San Francisco, where wearable devices are expected to be a major focus. Earlier this year, Google introduced Android Wear, a version of its Android operating system for wearables.

LG Electronics Inc. 066570.SE -2.48%and Motorola—the unit that Google agreed to sell to Lenovo Group Inc.LNVGY +0.69% for nearly $3 billion—are expected to introduce watches running on Android Wear later this year.

Samsung had used Android for its first Galaxy Gear smartwatch launched last year, but switched to Tizen, its homegrown operating system, for its second version, the Gear 2.

Google’s ambitions in wearable devices go beyond the wrist. Google Glass, the company’s Web-connected eyewear, has garnered a lot of attention, much of it negative because of privacy concerns. The company also is working on a smart contact lens that it hopes will measure blood-sugar levels of diabetes sufferers by monitoring their tears.

Already rivals in smartphone software, Apple and Google are expected to battle to control the health-related data collected by wearables. Earlier this month, Apple announced HealthKit, a system to collect and share data from various third-party wearable devices and apps. It also announced an app called Health to monitor that data on the iPhone. Google is expected to follow suit with a similar service at its conference next week.

Despite the hype around wearable devices, mainstream adoption has been slow. Currently, the best-selling devices are activity trackers such as the Fitbit Force, Jawbone Up, Garmin Vivofit and Nike Inc. NKE -0.71% ‘s FuelBand. Earlier this year, Nike announced layoffs at the division responsible for the FuelBand, sparking speculation that the product wasn’t selling well.

Omar Siddiqui, chief executive of Kiwi, a developer of mobile games for Android and Apple’s iOS, suggested that looking at today’s sales is misleading because the applications that will attract users haven’t been created yet.

“There are so many other use cases that we may not have thought of yet,” he said.

ABI Research’s Mr. Spencer said applications will emerge once component makers produce parts designed specifically for wearable products—rather than repurposed smartphone parts—to allow more design options.

Mr. Spencer said there is currently too much focus on the watch. The true potential of wearable devices, he said, is in the data that they collect not necessarily in the shape of the hardware.

Earlier this year, Intel Corp. INTC +0.37% Chief Executive Brian Krzanich unveiled a major push into wearable technology, showing off prototypes of new wearable devices developed by the company including a smartwatch and a smart earphone headset. He also announced a new chip called Edison aimed at wearable gadgets.

“We’re looking at a broad ecosystem of wearables,” Mr. Krzanich said during a speech at the CES technology conference in Las Vegas.

Apple has hired a number of designers, engineers and executives from both the fashion industry and medical device world to work on its forthcoming smartwatch, said people familiar with the matter. The company has been working on ways to use advanced sensors to track a person’s blood pressure and hydration levels, these people said.

The recent hires include Michael O’Reilly, former chief medical officer of Masimo Corp., which makes a finger-sized device to measure oxygen in the blood without drawing blood. In December, Mr. O’Reilly accompanied a group of senior Apple executives to a meeting at the U.S. Food and Drug Administration regarding “mobile medical applications.”

 

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About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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