Apple's Pacing Out Its Smartwatch Updates -- And That's a Good Thing

By Markets Fool.com


Image source: Apple.

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Apple (NASDAQ: AAPL) introduced its new smartwatch last week, after a year and a half without a hardware upgrade. Typically, Apple and other companies update new mobile and wearable products every year, but Apple hasn't been in any hurry. The company's managed to outpace sales of Samsung's (NASDAQOTH: SSNLF)smartwatches by more than 1 million in the second quarter of this year and is nipping at the heels of the current wearable tech leader, Fitbit (NYSE: FIT).

What Apple upgraded

Topping the list of upgrades in the newly released Apple Watch Series 2 was a GPS sensor. It wasn't a surprising update to the device, but it's a much-needed one. One of the most common complaints about the current Apple Watch was its lack of independence from the iPhone. With its own GPS sensor, runners will now be able to track their runs more easily with their watch.

That's a small step, of course, but this is Apple. The company enjoys entering new markets with flashy devices, grabbing lots of market share right out of the gate, and then slowly improving its devices over the subsequent years.

After the GPS, the other major upgrade is that the popular smartwatch is now waterproof up to 50 meters. That's a big step up from the previous versions' splash proof description. Videos of swimmers completely submerging their Apple Watches abounded in the presentation, along with a presentation on how Apple engineers repositioned the speaker on the Series 2 to push water out after it's been dunked in water.

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And lastly, Apple updated some of the internals, including a brighter display, an improved graphics processor, and a new dual-core S2 processor that's 50% faster than the previous generation. Apple's also upgrading the processor in the first generation Apple Watch.

Why these incremental upgrades matter

None of these upgrades are revolutionary, and almost all of them were already anticipated.But here's why simple, incremental upgrades will be enough for the company's smartwatch: Apple is already the No. 1 smartwatch vendor in the world and (as it humbly pointed out in its presentation) it's also the No. 2 watch vendor worldwide.

In short, Apple doesn't need major upgrades, gimmicks, or anything else to move its smartwatches off the shelves.

Samsung released its first Gear smartwatch more than three years ago and has peppered the market with a handful of wearable devices since then (it's already on the third version of its smartwatch). And yet Samsung shipped 1 million fewer smartwatches in Q2 2016 than Apple did.


Image source: Apple.

Apple still trails Fitbit in overall wearable shipment numbers, but Apple's meteoric rise in the wearable space in such short time means the company doesn't have much to worry about.

Fitbit has been making wearable tech devices for about seven years and currently has nine wearable products on the market. The company introduced its own smartwatch (the Blaze) recently and continues to release new iterations of its popular fitness trackers.

While Fibit is the undisputed wearable tech king, the company is fighting like mad to keep that position. The company's operating expenses more than doubled in the most recent quarter, year over year, as Fitbit poured more money into research and development and marketing. And that's subsequently pushed down gross margins from 46.8% last yearto the current 41.8%.

All of this indicates that Fitbit is running at a rapid pace in order to stay ahead of Apple -- meanwhile the Apple Watch maker is taking a leisurely stroll and still gaining more ground in the wearable market.

The bottom line

The smartwatch market is still in its early stages and there's plenty of time for Apple to build out its watch offerings even further, and possibly add other wearable tech devices into the mix.

Apple will probably continue to bring slow, incremental upgrades to the Apple Watch (a thinner design is the most likely, along with an eventual LTE connection). But Apple is doing what it always does -- pacing itself for the long distance race and leaving its competitors to sweat it out in the short term.

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Chris Neiger has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Apple and Fitbit. The Motley Fool has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.