Fossil to Make Android Watches - Analyst Blog

Watches are going to get a whole lot more interesting this year, as Google GOOG has released Android Wear, its wearables SDK for developers.

Google's close partners LG and Motorola are likely to be the first ones with an Android watch going by their announcements yesterday. Motorola expects its Moto 360 to be available some time in the summer, while LG's G Watch is expected in the second quarter. But they will soon be followed by watches from traditional partners Asus, HTC and Samsung, as well as fashion accessories maker Fossil Group FOSL.

Fossil shares jumped 4.6% following the announcement, as investors breathed a sigh of relief. Watches have not been a popular item of late, having gained the status of a discretionary item since phones started keeping time. The sheer variety has also made smart phones preferred gift items.

While Fossil's watch sales improved somewhat immediately following the recession, they slumped again as pent-up demand wore off. The persistent weakness in demand led to increasing concerns for the future, so the collaboration with Google looks like a godsend.

Fossil is not new to the concept: the company did try making its own smart watch some time back. But the device was a flop and had to be scrapped. The Android OS and the advantages of using Google Now are likely to make the watches attractive. So the company may be able to leverage Android's popularity to remain relevant in watches.

Fossil's fashion customers are mostly women with an eye for fashion, so the “coolness” of the device will be an important factor. The company has also been expanding internationally, so Android-based value watches for emerging markets could also boost sales.   

For Google, the agreement holds promise because it automatically gets Android into a premium category, which is certainly an area that Apple's AAPL iWatch will target when it launches later this year. Fossil has a leading market share in the category, so this could mean strong competition for Apple.

While the value side will be taken care of by its other partners, a lot depends on their ability to make winning devices. Samsung and Motorola's earlier efforts can hardly be described as breakthroughs. Google clearly plans to get Android into as many watches as possible, announcing partnerships with companies like Intel INTC, Broadcom BRCM, Qualcomm QCOM and Mediatek. So let's see how things pan out.