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Thursday, March 02, 2017
Wearables Aren't Dead, Fitbit Maintained Dominance in 4Q16


The worldwide wearables market reached a new all-time high as shipments reached 33.9 million units in the fourth quarter of 2016 (4Q16), growing 16.9% year over year, with Fibit to lead the market folllowed by Xiaomi and Apple.



Shipments for the entire year grew 25% as new vendors entered the market and previous champions refreshed their product lineups. The year came to a close with 102.4 million devices shipped according to data from the International Data Corporation (IDC).

Early on, the market was bifurcated between smart wearables - those capable of running third party apps - and Basic wearables, which lack this ability. However, despite the additional features and tech available on smart wearables, their utility and necessity has been questionable at best. In the past few months, two major platforms, WatchOS and Android Wear, have pivoted towards fitness and health applications. This is no accident, as that has been the only use case with any "stickiness" and the ability to run third party apps has taken a backseat.

"Like any technology market, the wearables market is changing," noted Ramon Llamas, research manager for IDC's Wearables team. "Basic wearables started out as single-purpose devices tracking footsteps and are morphing into multi-purpose wearable devices, fusing together multiple health and fitness capabilities and smartphone notifications. It's enough to blur the lines against most smart wearables, to the point where first generation smartwatches are no better than most fitness trackers.

"Meanwhile, smart wearables are also evolving," Llamas continued. "Health and fitness remains a major focus, but once these devices become connected to a cellular network, expect unique applications and communications capabilities to become available. This will also solve another key issue: freeing the device from the smartphone, creating a standalone experience."

Beyond the top 5 vendors are new entrants, including fashion icons like Fossil along with their sub-brands and emerging companies like BBK and Li-Ning, that are tapping into niche segments of the wearables market. In the case of Fossil, this happens to be as a luxury/fashion device, while BBK focuses on child-monitoring devices, and Li-Ning on step-counting shoes.

Top Five Wearable Device Vendors, Shipments, Market Share and Year-Over-Year Growth, 4Q 2016 (Units in Millions)

Vendor

4Q16 Unit Shipments

4Q16 Market Share

4Q15 Unit Shipments

4Q15 Market Share

Year-Over-Year Growth

1. Fitbit*

6.5

19.2%

8.4

29.0%

-22.7%

2. Xiaomi

5.2

15.2%

2.6

9.1%

96.2%

3. Apple

4.6

13.6%

4.1

14.1%

13.0%

4. Garmin

2.1

6.2%

2.2

7.6%

-4.0%

5. Samsung

1.9

5.6%

1.4

4.7%

37.9%

Others

13.6

40.1%

10.3

35.5%

32.1%

Total

33.9

100.0%

29.0

100.0%

16.9%

Source: IDC Worldwide Quarterly Wearable Device Tracker, March 2, 2017

Fitbit maintained its dominance, holding the top position for both the quarter and the year. However, the company also faced one of its largest declines ever as it remained heavily focused on the U.S., a market that is quickly approaching saturation for fitness trackers. Though the company has grown in other parts of the world, it also remained challenged as low-cost competitors eat away at Fitbit's market share.

Xiaomi's growth helped to close the gap between it and the top vendor. Like its other product lines, the company has stuck with a low-cost strategy and has slowly tried to veer upstream in terms of pricing by introducing new devices with heart rate monitoring and a mildly higher selling price. However, Xiaomi still lacks the expertise and brand recognition to expand beyond its native borders in China.

Apple Watch Series 1 and Series 2 proved to be a magnificent success for the company as it was the company's best quarter ever in the wearables market. The lower entry price point and the inclusion of GPS on the Series 2 along with a completely revamped user interface have helped the company grow its presence. Apple is one of the few companies that has been able to quickly refocus its watch to gain traction in the consumer market and has also been leading the charge on introducing the smartwatch category to the commercial segment.

Garmin experienced a slight decline of 4.0% in 4Q16. However, the company did manage to significantly raise its average selling price (ASP) to $258 in the fourth quarter from under $200 last year. Garmin caters to a more dedicated fitness audience and this has worked well as many of its users began to graduate from simpler fitness trackers to more sophisticated and expensive sport watches like those offered in the Fenix line. The new Fenix 5 announced at CES 2017 also shows promise as the new smaller size will help the device appeal to a broader audience.

Samsung rounded out the top 5 with the launch of two new models (Gear S3 Classic and Frontier) and remains the only major company offering cellular-enabled wearables. LTE connectivity has been a key differentiator for Samsung's watches as it has helped decouple them from smartphones, but more importantly it has opened up a new channel (telcos) to help promote the Samsung watches. Outside of watches, Samsung's portfolio also includes the Gear Fit 2 and the Icon X, though without any smartphone bundles, volumes for these wearables were lower than expected.



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