Samsung Introduces 3G Watch, Goes After Apple

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Today Korean Samsung Electronics said it will introduce the Gear S2 Smartwatch later this week. The smartwatch will be shown to the public at the IFA in Berlin on Thursday. Interestingly, the new Gear S2 will come in a 3G variant, and thus would be able to operate as a stand-alone phone. This is a huge advantage compared to the rest of the market, especially compared to the Apple Watch.

Threat for Apple?

Samsung chooses for a more traditional watch design with a ‘round face’ model, as opposed to Apple’s square display. The traditional design may provide a more familiar feeling to people wearing watches. However, the question is how many people in the focus groups are wearing watches and those who do, will they see a smartwatch as an alternative? Most people who don’t wear a watch might be less interested in the round vs square discussing, though squared may provide better graphical options. Those who wear a watch, might be not interesting in replacing it by a smartwatch, since a watch is more of an exquisite accessory. Playing the slicker design card might be less important for customers.

However, the stand alone feature may be a key advantage. For example, when jogging, cycling or working out, you don’t want to wear a smartwatch AND carry the smartphone with you. So a watch with direct connectivity has an huge advantage. For most people, the requirement of needing a smartphone to use a smartwatch is an huge threshold. So Samsung has for now a big advantage. Nevertheless, with the next Apple Event scheduled for September 9, it will be interesting how long this advantage will last.

The market for smartwatches is growing rapidly. Compared to Q2 last year, the number of shipments tripled in Q2-2015. Estimations by research firm IDC suggest that last quarter saw 18.1 million units shipped, compared to 5.6 in the same period last year (source WSJ). Market leader is still San Francisco based Fitbit with 4.4 million units shipped.

Apple still going strong, but what about the stock

The key advantage Apple holds compared to its competitors are its record margins. No other player in the industry is able to book similar high profits. During the previous quarter, it recorded a net income of USD 10.7bn (up approx. 40% YoY), with a 12month bottom line margin of 22.6%. Nevertheless, Apple’s share price became under pressure. Many analysts are worrying how long Apple can maintain these record profits. With China cooling and no real new margin champions in the pipeline, other than fresh updates for its flagship iPhone etc, we might see a justification for these concerns. Next week’s event may offer a better insight on the future. Apple watchers are counting on a fresh iPhone 6s and 6s Plus, a new iPad Pro and an update Apple TV. The latter product could be placed higher in the market than its predecessor, which benefits bottom-line margin. Question is how customers will run to the shop for this product, since competition is fierce.

For now, let’s wait for Samsung’s Gear S2 specs on Thursday and the Apple Event on September 9.

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