Market research firm IDC just released smartwatch sales numbers for the third quarter, and there’s plenty of bad news for Apple Inc. (NASDAQ:AAPL) and its Apple Watch.
The latest numbers show that the smartwatch industry as a whole is suffering steep declines. But AAPL is among the hardest-hit companies; sales of the Apple Watch plunged over 70% year-over-year.
The question now is: Can Apple recover?
Smartwatch Sales Take a Dive
It was never clear whether there was actually widespread consumer demand for smartwatches. The whole category began to take off after Pebble launched its record-setting Kickstarter campaign in 2012. However, to put things in perspective, that campaign raised $10 million-plus and saw nearly 69,000 backers.
In the grand scheme of things, those are minuscule numbers. Great for a startup like Pebble, but in retrospect maybe not an indicator that consumers in general were ready to embrace the new product category.
Add in the challenge of fitness tracker companies that refuse to give up. Fitbit Inc (NYSE:FIT) was squarely in the crosshairs of the Apple Watch. Instead of rolling over, Fitbit released a new generation of trackers, some of which incorporate key smartwatch functionality. Namely, notifications.
With consumers more interesting in tracking their health and fitness than paying a considerable premium to run apps on their wrist, Fitbit’s sales have defied predictions and continued to grow.
Meanwhile, the smartwatch market is tanking.
IDC’s numbers for the third quarter show smartwatch sales down by 51.6% compared to last year. Pebble — the early pioneer — saw its sales drop 54% to only 100,000 units. What’s particularly telling about that number is that it still allowed Pebble to place in the top five worldwide … AAPL took a beating with its sales off by 71.6%, a miserable performance only topped(?) by Lenovo (OTCMKTS:LNVGY), which dropped by a whopping 73.3% compared to last year.
The two bright spots in the smartwatch market were Garmin Ltd. (NASDAQ:GRMN) and Samsung (OTCMKTS:SSNLF). Garmin has managed to position itself as the smartwatch maker of choice for runners, leveraging that strategy to a huge 324.2% sales growth and second place in the smartwatch market. Third place Samsung saw 9% growth.
Can Apple Watch Sales Recover?
The big question is whether these poor sales results indicate the air has come out of the smartwatch market altogether, or if they’re more cyclical.
Smartwatch sales have never lived up to expectations. When the Apple Watch was first released, some “conservative” estimates predicted sales in the 36 million range for the first year. Instead, AAPL sold roughly 12 million. Maybe the air was never really there in the first place.
On the other hand, during the last quarter, the smartwatch models available for purchase were largely older models, with new versions expected soon. The Apple Watch Series 2 was only available for several weeks of Q3, so its sales don’t really come into play. Pebble faced the same issue, with the new Pebble 2 arriving late in the quarter. Meanwhile, Alphabet Inc (NASDAQ:GOOGL) delayed releasing its Android Wear 2.0 operating system, resulting in some vendors holding off on releasing their new smartwatches. Samsung announced the new Gear 3, but it is not yet for sale.
So consumers may have been holding off, waiting for the new products to arrive.
What has become obvious is that despite the initial hype, the smartwatch market is unlikely to reach the mass market adoption levels of the smartphone. As pointed out by IDC, “It has also become evident that at present smartwatches are not for everyone.”
Price cuts of the original Apple Watch (now the Series 1), the arrival of the Series 2 and a renewed focus on health and fitness tracking should help Apple Watch sales bounce back in Q4. It seems likely to hold its lead as top dog in the smartwatch market for a while yet.
However, it seems increasingly doubtful that the Apple Watch is going to be AAPL’s next big smash hit. A steady revenue generator, sure, but not the next iPhone.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.