Computers that you wear. It sounds far-fetched, but it’s coming — no matter what you feel about it. Some early wearables do seem far-fetched. But there are plenty of other options that are coming soon, most likely before the holiday season. What companies might be able to boost profits on the wearable computing trend? Let’s take a look.
“We Need a Hit”
Firmly entrenched as a staid enterprise business, seemingly no one thinks that Microsoft Corporation (NASDAQ:MSFT) has any potential in wearable technology. It seems to always flop with Windows on phones, and its Surface tablet appears to be just a way to sell Windows 8 — which is not doing well. Microsoft Corporation (NASDAQ:MSFT) knows that it needs a consumer hit outside of the Xbox. It has been steady with R&D, keeping spending at around 13% of annual revenue in the past three years. That’s around $10 billion every year for the company to try to develop new products and services.
Hopefully, some of that spending will result in some sort of consumer wearable technology. Microsoft Corporation (NASDAQ:MSFT)needs a hit, as its income has dropped 20% from 2011 to 2012. Tried and true, it’s betting on a new Xbox. But the same company that came out with the motion gaming Kinect device has to have some sort of wearable product up its sleeve. Will it come along with the release of the next Xbox?
Finding its way into hardware
Google Inc (NASDAQ:GOOG) needs to find a way to keep advertising revenue up and growing. So, it’s no wonder that it is trying to make a big deal out of Google Glass. The idea is that releasing this product to early adopters will translate into an ecosystem around this tech — and more advertising sales somehow. There has been a tepid response to Google Glass so far. Poor battery life, limited wireless capabilities, and privacy concerns have plagued it.
Yet, Google Inc (NASDAQ:GOOG) is on to something in selling hardware. In 2012, the company reported that 8.2% of revenue came from Motorola, which sells mobile devices and other miscellaneous electronics. This diversification is important, as the company has been criticized for being a one trick pony that could dry up in a drought of advertising. Indeed, the company now derives over $6 billion in revenue from sources outside of ads thanks to Motorola.
The biggest wearable company of all?
Gartner predicts that the wearable tech market will hit $10 billion by 2016. But they expect a majority of that money will come from athletic gear that is deemed “smart.” With that, the best bet is on Apple Inc. (NASDAQ:AAPL) making the most of this market. Why? Because the demographics in the United States suggests that Apple already has a major foothold in the trend towards mobile fitness technology.
According to Apple’s most recent quarterly filing, its Americas operating income went down to $5.1 billion from $5.6 billion a year earlier even though net sales went up 6.5%. It appears that this is a trend in most other regions as well. That might suggest that producing complex devices like iPhones will continue to take a bite out of revenue. With that in mind, selling simplistic add-ons like watches or fitness bands would be a great complementary product to smartphones, helping overall growth.