Big-screen iPhones, iWatch start the clock on Apple's 'amazing' product spree

CEO Tim Cook has promised for more than a year that Apple will bring out new products and step into new categories. At this week's event to talk up larger-screen iPhones, fans are hoping he'll finally deliver the next big thing -- a wearable device.

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Apple CEO Tim Cook walks off stage after speaking during Apple's Worldwide Developers Conference in June. The pressure is on for him to show "amazing" new devices. Justin Sullivan/Getty Images

Apple CEO Tim Cook started saying last year that the world's most-watched consumer electronics maker would soon deliver "amazing" products that cross into new categories beyond its wildly successful smartphones, tablets, and computers.

That time needs to be now.

Apple on Tuesday is expected to update its top moneymaker, the iPhone, adding larger displays to the smartphone in a move designed to win back customers lured away by big-screen devices from its archrival, Samsung. Company watchers expect two versions of the so-called iPhone 6 -- with displays measuring 4.7 inches and 5.5 inches -- that take the design beyond the current 4-inch display in last year's iPhone 5S.

Since Apple has updated its smartphone every year since its 2007 debut -- the iPhone, after all, accounts for more than half of its sales -- new handsets aren't a surprise. The hope is that Cook, who took over as CEO from Steve Jobs three years ago and hasn't yet taken the company into new markets beyond those established by his former boss, is expected to do just that and mute critics who say Apple has lost its golden touch.

Apple's first wearable device, already dubbed the iWatch by fans, is believed to come in two sizes, have a curved screen made of the super clear, super tough sapphire glass already used in most of the world's premium watches, and include a near-field communication (NFC) chip to enable mobile payments and easy pairing with other devices -- starting with the iPhone.

If Apple's chief designer is right -- Jony Ive reportedly boasted about the design work on the iWatch, saying that Switzerland is in trouble -- Apple may just deliver the "amazing" Cook has been promising.

Because that's something Apple really needs to do.

Apple hasn't entered a new category since Jobs unveiled the "magical" iPad tablet in 2010, and every new version of the iPhone, iPad, and Macintosh computer since then has been deemed "evolutionary" rather than "revolutionary" by reviewers and customers, leading to slowing profit and revenue growth. Apple generates about two-thirds of its sales from the iPhone and iPad, but the markets for those gadgets are becoming saturated, with rivals from Amazon to Google to Microsoft to Samsung battling for customers and the billions they spend on mobile devices.

As its competitors get faster at bringing out new products, Apple investors anxiously await the electronics maker's move. The company's stock has set record highs since a 7-for-1 stock split in June. The shares closed at $98.87 in regular trading on Friday.

"A lot of other companies don't need to be as bold on a frequent basis as Apple," said Soumen Ganguly, a director at consulting firm Altman Vilandrie & Co. But people have come to expect it from Apple, he added. "They're only as good as their last great product, and we're four years away from that."

Apple declined to comment.

"The wrist is a natural"

The definition of "amazing" depends on who you are. For many people, it means a groundbreaking device that redefines the category. The first iPhone changed the smartphone market, popularizing touchscreens, while the iPad delivered on the promise of a tablet computer after others played around with the concept for decades.

A bigger-screen iPhone 6 doesn't quite fit that definition. But a wearable -- a market many of Apple's rivals have already entered -- might.

Mobile device makers including Samsung, LG, and Motorola and Taiwanese PC maker Asus have unveiled smartwatches and fitness bands. Traditional watchmakers, such as Fossil, are getting in on the act. And even Intel, the world's largest maker of computer chips, last week announced a new bejeweled luxury smart bracelet called the MICA that will sell for less than $1,000 later this year.

Samsung, locked in ongoing patent disputes against Apple over smartphone and tablet designs, has introduced six smartwatches in the past year to define what the wearable market will be. Its devices include the Gear S smartwatch, which has its own 3G wireless connectivity (so it doesn't have to be paired with a smartphone or tablet); the Gear Fit fitness band; and the Gear Live, which runs Google's new Android Wear software for mobile devices.

So far, few consumers are biting. In the US, Europe, China, Japan, and Australia, less than 1 percent -- or 0.81 percent -- of consumers own a smartwatch, according to a study by Kantar Worldpanel ComTech. Of global smartwatch owners, 51 percent have strapped on a Samsung device, 17 percent use Sony, and 6 percent own a Pebble smartwatch, the research firm said.

Apple, who also wasn't first to market with a digital music player, smartphone, or tablet, has an opportunity to do what it's done in the past: come out with an elegant, easy-to-use device that showcases why it's a must-have. That's what its smartwatch rivals, dinged for creating big, clunky, and unappealing designs, have failed to do, proffering nice but not compelling features like fitness tracking and notifications.

"It's on Apple's shoulders to prove that the wearable they're bringing out is more of a necessity than a luxury," said Tony Ursillo, a technology equity analyst and portfolio manager at Loomis, Sayles & Co, a Boston-based firm that invests in Apple. Most smartwatch "functionality at this point is more of a luxury. ... You're not going to get a billion people buying a health band or a smart wristwatch for [notifications and similar features]."

There's little real information but lots of speculation about Apple's wearable. Cook's only comments about the wearable market came at an industry conference last year, where he said that no company had yet come up with a compelling wearable device. "There are lots of gadgets in this space right now, but there's nothing great out there," Cook said. "There are a lot of problems to solve in this space. ... It's ripe for exploration." His only hint at what Apple might be working came when he dismissed smartglasses and said, "I think the wrist is interesting. The wrist is natural."

Wearable tech, a lifestyle choice?

It's likely, say Apple watchers, the company won't position its device as a smartwatch but rather as wearable technology that works seamlessly with your lifestyle.

An NFC chip would allow people to pay for items by tapping their wearable on supported point-of-sale terminals at the checkout counter. The iPhone 6 may also include the chip, which would make it easier to pair the two devices.

The iWatch likely also will include health-centric features that will be supported by the HealthKit software that Apple introduced at its developers' conference in June. The software lets consumers track health-related data and serves as a hub for that information. Something that's worn constantly would fit right in with the overall promise of HealthKit.

Other possible features include wireless charging, and an ultra-strong, scratch-proof screen made of the sapphire glass it's already investing in through a partnership with sapphire glass maker GT Advanced Technology announced last year. (The iPhone 5S already uses sapphire in its fingerprint scanner and camera lens). Offering the iWatch in two different sizes would make the device more attractive for women and others with smaller wrists. Those features alone would set the iWatch apart from other devices on the market.

"They definitely cannot do a 'me-too' [device]," said Carolina Milanesi, an analyst at Kantar Worldpanel. "They have to get it right."

Estimates vary on the potential size of the wearables market, with some analysts predicting it to soar and others forecasting its demise. Market research firm IDC projects that from the end of this year to 2018, wearable shipments will increase nearly sixfold to 111.9 million units. Forrester Research, however, predicts that by 2016 the functionality of smartwatches and fitness bands will be absorbed by other devices such as smartphones and sensor-laden headphones.

As for Apple, Morgan Stanley analyst Katy Huberty estimates the company could ship at least 30 million iWatches in the first 12 months the device is on sale, generating about $9 billion in revenue. It's possible Apple could ship double that amount, she added. By comparison, Apple sold 35.2 million iPhones in the quarter ended this June, helping it generate a total $37.4 billion in fiscal third-quarter revenue.

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Apple will host an event Sept. 9 at the Flint Center in Cupertino, Calif. James Martin/CNET

But it also sold only 19.5 million iPads in the first year the tablet was on the market. Still, noted Huberty, "We believe the iWatch opportunity is significant."

For Apple, it may not be that massive shipment volumes matter that much. Instead, the iWatch could be the device that broadens its ecosystem, centered on the iOS software that powers the iPhone and iPad and which runs more than 1 million apps, into health care/fitness and mobile payments. The device also could integrate with the smart home through Apple's HomeKit software, also announced in June as part of the new iOS 8 software due shortly.

Apple's wearable may include some music element or tie-in with Beats, the streaming music and headphones maker Apple bought for $3 billion at the beginning of August. At the very least, Apple likely will talk about its new business. Dr. Dre, a rapper and one of the Beats co-founders, played a small role at Apple's Worldwide Developer Conference in June, talking with Craig Federighi, Apple's head of software, on speakerphone.

Apple's event, to be held Tuesday at the Flint Center for the Performing Arts near its corporate headquarters in Cupertino, Calif., is already one of the most-hyped launches Apple has ever had. Cook will step on to the same stage where Apple co-founder Jobs unveiled the Macintosh computer in 1984 and the candy-colored iMac computer, designed by a team led by Ive, in 1998. The venue seats more than 2,300 attendees, and Apple has spent the last month building a large white structure outside the building that will likely serve at the demonstration center for its new products.

There's speculation Apple may only show its wearable this week, but not start selling it until next year. In the long run, consumers and investors may not care. But they're not always going to be patient.

"They better deliver," said Michael Obuchowski, an Apple shareholder and chief investment officer of Merlin Asset Management.

Apple's event starts at 10 a.m. PT on Tuesday, Sept. 9. Join us for CNET's live blog and show starting at 8:45 a.m. PT.


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