Apple's Upcoming iWatch to Hurt Watchmakers - Analyst Blog

Apple's AAPL rumored smartwatch “iWatch” spells doom for watchmakers such as Movado Group MOV and Fossil Group FOSL. Year-to-date, Movado and Fossil share prices have declined approximately 6.0% and 10.8%, respectively. On the other hand, Apple share price has increased 15.1% over the same period.

Reportedly, Taiwan's Quanta Computer Inc will start mass-manufacturing iWatch in July. The company is expected to launch the much-anticipated device in October this year. Read: Apple's iWatch to Hit Markets in October.

Per The Wall Street Journal, iWatch may come in multiple designs. It is believed that Apple may use different screen sizes to cater to a large demography (price-wise) as well as to diverse wrist sizes, thereby expanding its user base.

iWatch will include more than 10 sensors to monitor health and fitness related data. Per Chinese news site Laoyaoba, Apple is awaiting approval from the Food and Drug Administration (FDA) to use it as a certified diagnostic medical device.

iWatch's close integration with Apple's recently announced HealthKit data storage platform has further fueled the rumors. Per the website, iWatch's biometric sensors will allow users to measure heart rate, blood pressure and blood glucose. The in-built sensors can also perform sweat analysis.

We believe that an FDA-approved diagnostic device will give Apple a significant leverage over its competitors. Per The Wall Street Journal, activity trackers from Fitbit Force, Jawbone Up, Garmin Vivofit and Nike FuelBand are currently the best-selling devices.

However, Apple's entry into the wearable market will significantly change the current scenario, much similar to what it did to the mobile devices market way back in 2007 through the launch of iPhone.

Apple will be closely followed by LG Electronics and Motorola that are set to launch their smartwatches, based on Google's (GOOGL) Android Wear, by the end of this year.

Although Apple has denied commenting on iWatch, the rumored device will rejuvenate its product portfolio. Amid intensifying competition from Samsung and a saturating smartphone market, Apple has been facing growth headwinds in most of its operating markets.

The stupendous growth projection for the wearable market is a key growth catalyst for Apple. Per market research firm IDC, 2014 worldwide shipments of wearable computing devices will increase three-fold to 19 million units from the 2013 level. This is expected to further grow to 112 million in 2018.

Of late, Apple has shown some resurgence based on its expanded capital program, 7:1 stock split, new OS X Yosemite, iOS 8 and HealthKit. We believe that a successful iWatch launch will further boost the shares in the near term.

Currently, Apple has a Zacks Rank #3 (Hold).