For the past several years, Apple (NASDAQ:AAPL) has been able to run away with the smartwatch market. Competitors running Android — now re-named Wear OS — from Alphabet’s (NASDAQ:GOOGL) Google division have never been able to catch up. Part of the blame for that poor showing sits with Qualcomm (NASDAQ:QCOM), which supplies the ancient processor those Wear OS smartwatches run on. That is set to change. Yesterday, QCOM finally unveiled the replacement for its two and a half year-old processor: the Snapdragon Wear 3100.
Will this new processor be enough to finally goose Wear OS smartwatch sales, just as Apple is about to take the wraps off the new Apple Watch Series 4? QCOM stock popped 2.76% yesterday, so investors seem to think there’s something to it.
QCOM Announces Snapdragon Wear 3100
The Snapdragon Wear 3100 has been a long time coming. Qualcomm was talking up its new smartwatch processor back in May, promising that unlike the Snapdragon 2100, it was designed from the ground up for smartwatches. Not based on aging smartphone technology like previous chips. At the start of August, the company sent out invites for a September 10 event, and hinted at a secret “flagship device.”
That secret device was widely expected to be a Google Pixel smartwatch. With Google providing the Wear OS operating system that powers these smartwatches, it’s been expected the company would follow up its Pixel Home smart speakers and Pixel smartphones with a Google-branded Pixel smartwatch. However, Google made it known at the end of August that it will not be releasing its own smartwatch in 2018.
So there was no secret flagship smartwatch unveiled at yesterday’s event… However, QCOM finally showed off the new Snapdragon Wear 3100. The processor is now shipping and will be powering smartwatches coming this fall from Wear OS leaders including Fossil (NASDAQ:FOSL) and Luis Vuitton.
Key Selling Points of the Snapdragon Wear 3100
The Snapdragon Wear 3100 isn’t designed for a big boost in raw power, instead it’s meant to significantly improve the overall Wear OS experience. And it employs a new co-processor that uses 20 times less power than the main CPU to run functions when the watch isn’t in active use. This means always-on displays that can also display complications — a key advantage Apple Watch can’t touch.
Battery life is also significantly improved. QCOM says this can range from an additional four to 12 hours compared to the previous generation processor, with active watches able to hit 15 hours of constant use (including GPS and heart rate monitoring).
And while Qualcomm used to manage sensor data, the Snapdragon 3100 has the option for smartwatch makers to directly access sensors. This allows manufacturers to differentiate their offerings by developing custom code — something fitness watch companies might be interested in doing.
QCOM is offering three variations of the Snapdragon 3100 platform: Bluetooth and Wi-Fi tethered, GPS tethered, and LTE.
Will The New Processor be Enough to Catch Apple?
Of course the key question if you’re looking at the impact of the Snapdragon 3100 on QCOM stock, is whether the new chip will sell more smartwatches. At this point, IDC says Apple Watch is still expected to outsell all Wear OS smartwatches combined by a near four-to-one margin for 2018. After that, predictions have the gap beginning to close, while the overall smartwatch market continues to grow. Helping matters are an overhaul to Wear OS (including a Google Assistant feed), which Google is pushing out this fall, and the likely release of a Google Pixel smartwatch in 2019.
By 2022, the Apple Watch is still expected to be the market leader, but by a significantly lower two-to-one margin. Wear OS smartwatch shipments are forecast to grow with a CAGR of 38% between now and 2022, meaning a lot more Snapdragon 3100 chips being sold. And that means upside for QCOM stock, even if the new processor isn’t enough to actually unseat the Apple Watch.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.
