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Everyone's saying smartwatches are over, but they're wrong

It's not time to say farewell to smartwatches just yet.

Sarah Tew/CNET

You may have read reports claiming the smartwatch market is "tanking", "crashing" or a number of other synonyms describing a decline. Numbers have been thrown around, and they've been interpreted like tea leaves: questionably.

The numbers aren't wrong, but don't prepare for a smartwatch-free future just yet.

Apple shipped a whopping 3.9 million Watches in Q3 2015 and accounted for 70 percent of the total. In Q3 2016 the number was 1.1 million and 41.3 percent. The 2.8 million unit drop accounts for the total 2.9 million unit year-over-year decline reported for the whole market. Apple's shipments accounted for the marked drop in numbers overall, but excluded the rest of the market remained steady at 1.7 and 1.6 million units.


Apple's lower numbers are distinct but the explanation has little to do with a market decline.

"Considering how much Apple accounts for the entire market, and its sharp decline from a year ago, its [impact] is very significant," IDC researcher Ramon Llamas said. But not only is it unsound to conclude a drop in sales of a single product indicates a declining market, there are other reasons the numbers are so different.

IDC presented its data in an annualised quarterly comparison and that's how it was interpreted in most reports. Ordinarily this isn't a problem. In 2015, for example, Apple sold 225 million iPhones while Android manufacturers sold a combined 1.2 billion phones, according to research firm Gartner. In a very competitive market with billions of smartphones sold, no single manufacturer has the ability to skew the reported numbers. And with Apple, Samsung, HTC and other big brands refreshing phones annually, year-on-year sales reports are more reliable.

The smartwatch market couldn't be more different. Apple is responsible for a much larger chunk of the market. A total of 21.3 million smartwatches were shipped in 2015, according to an IDC report. Apple was responsible for 13 million, a huge 61.3 percent of all smartwatches shipped. Demand for the Watch has a huge impact on market reports. Importantly, unlike mobile phones the Watch was refreshed after an 18-month cycle, throwing the data off when it's compared on an annual cycle.

IDC researcher Ramon Llamas noted the Apple Watch was still in its "launch phase" in much of 2015 Q3, which covers July to September. The winding down of production and lead up to the launch of the Watch Series 2 accounts for the lower figures in Q3 2016. The Watch's longer life cycle and IDC's annual reporting resulted in the best and worst quarters being compared, which explains the dramatic 51.6 percent difference.

Apple was contacted but declined to comment.

Without more data, it's too early to draw any conclusions about the smartwatch market, but a good time to check in will be Q1 2017 results. This is the equivalent quarter to Q3 2015 with both covering the 3-6 month period for both generations at peak demand.

While the Apple Watch continues to dominate the market, it'll be more useful to compare equivalent quarters over an 18-month cycle in line with the Watch. This allows the influence of the Watch's product cycle on market reports to be factored in with trends separate to that becoming more obvious. If the data from Q1 2017 and Q3 2015 shows a plateau or decline across all manufacturers then we should start asking the hard questions.