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Apple Inc. (AAPL): The Unassessed Risk of the iWatch

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I am always a step behind when it comes to technological developments…My next problem will be cell phones…I’ll have given in by the time you read this, but by then I’ll probably be among the last people in America not reading e-mail on their wristwatches.

-John McWhorter, author of the Power of Babel, copyright 2001.

Rumors concerning an Apple Inc. (NASDAQ:AAPL) iWatch have sparked a brand new buzz phrase: wearable technology.  Rumors have been flying that the tech giant has this new kind of product on the radar.  While I think that the geek-out train is leaving the station a little prematurely, it got me thinking: what companies have the most to lose if this becomes a reality?

Competition is nothing new–all companies deal with it, and all companies expect it.  But for a couple of companies, they could soon be facing very real competition from sources they never expected.

The Smart Watch

It started as a little rumor just a little ways back that Apple Inc. (NASDAQ:AAPL) was thinking about making a smart watch.  However these rumors now seem to have a little more weight as competitor Samsung announced that they aren’t just thinking about a smart watch–it’s a done deal.

It’s hard to speculate on a product that doesn’t exist and hasn’t even been officially announced.  But I believe that I can say this with relative certainty: if Apple Inc. (NASDAQ:AAPL) goes ahead with the watch, thousands, if not millions, of Apple Inc. (NASDAQ:AAPL) fans will buy it.  And while it will likely be cheaper than the iPhone or the iPad, by watch standards it is not going to be cheap.

All this talk about smart watches should have companies like Fossil Inc (NASDAQ:FOSL) a little worried.  Asian sales are a huge part of this company’s current and future growth.  This year Asian sales are expected to represent 15% of all revenue.  But that number has the potential to grow to over 30% in a few years.  For a continent seemingly obsessed with high-tech gizmos, a smart watch trend does not bode well for Fossil, unless they can adapt.

Fossil has dabbled with smart watches in the past.  There was the Fossil Wrist PDA, and it was about as exciting as it sounds.  There have also been watches that were capable of connecting to MSN Direct to pull some very basic information onto the watch.  But with the latest rounds of smart watch talk, people want a lot more than these past items.  The most promising of all the Fossil projects was a partnership with MetaWatch.  However, Fossil and MetaWatch have since parted ways.

To be clear, this isn’t contingent on what Apple Inc. (NASDAQ:AAPL) does.  Samsung, LG, and Google Inc (NASDAQ:GOOG) are all trying to get into this area right now.  One way or another, smart watches are going to become reality.  And just like how the smart phone is currently killing off the “non-smart” phone, it is possible that traditional watches will fade to the fringes.

How big could it be?  ABI Research believe that by the year 2018, 485 million devices will be shipped every year.  Citi analyst Oliver Chen says it “could easily evolve into a $6 billion annual business.”

The Smart Glasses

Taking the wearable tech to a new level is Google with Google Glass.  What exactly does is Google Glass?  You know all that cool stuff that IronMan sees?  He can read the weather forecast, find the horizon, and see if the guy he’s looking at has a criminal record.  Well, Google Inc (NASDAQ:GOOG) Glass isn’t too far from that.

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