Why Apple's Upcoming Apple Watch Refresh Is So Important

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On Wednesday, Apple (NASDAQ: AAPL) executives will take the stage to announce the company's latest products. Of course, if history is any indication, the major new product announcement next week will be new versions of the latest iPhone. Indeed, the tech giant is rumored to release three new iPhones with iPhone X-like corner-to-corner displays.

But even though the iPhone is undoubtedly Apple's most important product in terms of its contribution to the company's overall business, there's another product category investors should have their eyes on next week: wearables. Both Apple Watch and AirPods are quickly rising in importance to Apple as sales of the two devices skyrocket, signaling the big potential for Apple's wearables business.

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The ever-active Apple rumor mill hasn't provided any clear indications there will be new versions of AirPods released during next week's event (of course, it's always possible). But a new version of Apple Watch is expected. Here's what to expect from Apple's latest version of the smartwatch -- and why it's so important.

Apple Watch Series 4

It's all but confirmed that Apple will launch a new Apple Watch next week. Not only have purported images of the new device leaked, but the timing makes sense; a refreshed Apple Watch during Apple's annual iPhone event would corroborate with the timing of last year's Apple Watch unveiling.

The watch is rumored to have a similar outer form factor as its predecessor while featuring an approximately 15% larger display. This will be achieved by having narrower bezels, according to Apple rumor website MacRumors. The recently leaked image of the smartwatch suggests this speculation about the new device's display is true.

Other rumored specifications for Apple's next Apple Watch include longer battery life and improved health monitoring.

Wearables: A key catalyst

A look at Apple's recent financial results confirms the importance of Apple Watch -- and wearables overall -- to the tech giant's business. "Other products," the segment in which Apple accounts for its Apple Watch, AirPods, Beats products, and other accessories, has grown at very rapid rates recently. Other products revenue was up 38% and 37% year over year in Apple's second and third quarters of fiscal 2018, respectively. This growth even outpaced services, which grew 31% year over year in both quarters.

Apple CEO Tim Cook highlighted the company's strong performance in wearables in its most recent earnings call:

Sure, $10 billion of wearables revenue pales in comparison to the $158 billion of iPhone revenue Apple has generated over the past 12 reported months. But such strong growth in a nascent segment not only demonstrates how Apple can expand into new product categories, but it strengthens the tech giant's overall ecosystem with yet another leg of its business and additional gateways to its fast-growing services segment.

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Daniel Sparks owns shares of Apple. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.