Apple Watch 2 Review: How Much Could This Help Apple?

By Markets Fool.com

Apple's(NASDAQ: AAPL) newest version of its original smartwatch is here. The Apple Watch Series 2 came available in September, followed by the Nike(NYSE: NKE)-branded edition, which shipped in late October. This upgrade from Apple's first smartwatch iteration has been met with anticipation about whether it would be enough to turn Apple's dwindling watch sales around.

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So let's review the Apple Watch Series 2 and consider how much it could really help Apple sales going forward.


Image source: Apple

Apple Watch 2: a review

After spending some time testing out the new Apple Watch Series 2, I'm impressed, even though it has only incremental changes from the first version. Two of the most important new features include the stand-alone GPS, which makes it possible to run without having to be tethered to a phone, as well as being waterproof enough for a swim or other water sports, including those in saltwater. Together, these make the watch a much better and more versatile fitness-tracking device than its older sibling.

Other than fitness-specific upgrades, the watch's brighter screen, faster loading times, improved speaker, and longer battery life make the whole experience of using the watch better than the Series 1.Apple has made a few other big upgrades in the new operating software, watchOS, such as changing the use of the button below the digital crown to now bring up a dock of apps that users can scroll through, instead of just bringing up contacts, as in the earlier version.Siri also now has voice recognition, so that you can raise your wrist and say "Hey Siri" to begin commanding your watch without ever touching it.

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But while the Apple Watch Series 2 has made some nice upgrades and has so far been receiving mostly solid reviews, it isn't much of an overhaul from the first series. Without some major new additions, such as a camera or stand-alone 3G allowing the watch to be used in place of a phone, Apple will be relying on sales from brand loyalists who are going to upgrade from a Series 1 watch, or else a base of consumers who didn't see the need for a Series 1 watch and will buy this version just based on these minor changes.

Could this boost Apple watch sales?

The broader wearables market that includes basic wearables -- names such as Fitbit (NYSE: FIT) and the like, which don't support third-party apps on their devices -- seems to be growing nicely. From Q2 2015 to Q2 2016, the most recent data that includes the entire market, grew to 22.5 million, up 26% from a year ago. Fitbit itself gained slightly to now hold over a 25% global market share again, compared with Apple, which controls just 7% of the broader wearables market and saw its share dwindle.

Company

Global Wearables Market Share(by units sold, as of Q2 2016)

Units-Sold Growth (Year Over Year)

Fitbit

25%

28%

Xiaomi

14%

2.5%

Garmin

7%

106%

Apple

7%

(56%)

Data sources: IDC

While the broader wearables market is performing well, smartwatch sales have declined drastically. During Q3 2016, for which slightly more recent numbers are available for just the smartwatch segment of the wearables market, around 2.7 million units were shipped -- less than half the amount a year ago. Apple had the largest share of the smartwatch market, with about 41%, though that's down from 70% market share this time last year, and its estimated 1.1 million units sold is down 72%. These numbers don't include the full rollout of the Apple Watch Series 2, so Q4 and Q1 numbers from the IDC will be telling, in terms of how much this new version helps Apple regain a foothold in this market. Based on Fitbit's recent questionable Q4 forecast, there seems to be plenty of opportunity for Apple to grow.

The Nike+ version is the same watch technology, just with a different band and some featured Nike-branded watch faces. Image source: Apple.

It's been a long time since any analysts seriously considered an Apple Watch to be the future of Apple sales and really move the needle up in a time when iPhone sales, which make up 60% of total sales, have been pressured. Apple doesn't give exact Apple Watch sales but instead lumps them into the "other products" category, which, along with the Apple TV, Beats products, the iPod, and Apple-branded/third-party accessories, together make up about 5% of total sales.

IDC predicts the wearable markets to finish at about 110 million in 2016, and nearly double that figure by 2019. The fact that non-smart wearables have done so well shows that fitness tracking is important to consumers of this trend, and with the new Apple Watch, with its GPS, water-resistant casing, and ratings as one of the most accurate heart-rate monitors, there's a good chance for Apple to gain on this market.Still, while this new Apple Watch is a nice upgrade over the first version and could very well improve Apple's standing in the wearables market, even a nice bump in sales isn't likely to move the needle for Apple's total sales anytime soon.

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Seth McNew owns shares of Apple and Nike. The Motley Fool owns shares of and recommends Apple, Fitbit, and Nike. 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.