Analysis, VR World

Ready to Wear?

jumpy-smartwatch-children

Taiwanese technology companies are poised to tap the fledgling wearable devices market on the back of their hardware prowess and ties with Apple, whose highly anticipated smartwatch is expected to spur mass consumer adoption of the gadgets.

Wearables track information for health and fitness purposes, such as the number of hours slept, steps walked or calories burned and are equipped with small motion sensors to take photos and sync with mobile devices. In addition to smartwatches, other common wearables include connected fitness bands, glasses and fabrics.

Thus far, devices from global brands including Samsung (KRX:005930) , LG (KRX:066570) and Sony (TYO: 6758) have failed to generate a devoted following. Consumers are put off by their limited functionality, analysts say. “People are asking themselves, ‘why would I want to put on this watch?’”says Amy Teng, a principal research analyst at Gartner in Taipei.

But many industry experts believe Apple’s smartwatch will solve that conundrum, creating a viable new product category as the iPad did for tablet computers. The research firm IDC forecasts wearables shipments will triple on year to 19 million in 2014 and reach 112 million by 2018. Juniper Research is more bullish, predicting shipments will rise from 27 million this year to 116 million by 2017.

“Without Apple’s involvement, manufacturers would think twice about investing heavily in an unproven product category,” say Jeremy Huang and Jessica Hsu, senior analysts at the Market Intelligence & Consulting Institute (MIC), a research house affiliated with the Taiwanese government.

Benefiting from Apple

While Apple remains tight lipped about details of its forthcoming smartwatch, several Taiwanese manufacturers are involved in the production of the device, market insiders say.

The most prominent of them is Quanta Computer (TPE: 2382), the world’s largest contract PC manufacturer. Quanta is a major supplier of Apple’s (NASDAQ: APPL) iMac computers and has also produced its iPods in the past. Quanta’s mobile device team is the primary manufacturer of the Apple Watch, according to Taipei-based Fubon Securities (TPE:2881).

Arthur Liao, a downstream analyst at Fubon, believes the Apple Watch will not be a major source of earnings for Quanta, contributing just 5-6% of overall revenue, but will help the company to move beyond hardware manufacturing. “Quanta wants to use the Apple Watch to get a foothold in cloud computing and the Internet of Things (IoT) ecosystem,” he says.

Liao believes Kinsus Interconnect Technology, a Taiwanese maker of electronics components, is in the Apple Watch supply chain because of its ability to mass produce curved printed circuit board (PCB) components required for the device’s flexible display. “Kinsus is the only company with both the advanced technology and production capacity to meet Apple’s requirements for these parts,” Liao says. “Winning this order from Apple will help Kinsus reaffirm its position in pioneering technology.”

Homegrown wearables

Taiwanese firms are also keen to gain a foothold in the burgeoning wearables market with devices of their own. At Computex, more than three-fourths of the 59 wearable exhibitors were from Taiwan, compared to six at the 2013 show.

Among those exhibitors was Acer (TPE: 2353), the No. 4 PC maker globally, who unveiled a hybrid fitness band-smartwatch called the Liquid Leap. The device has received a mixed reception. Wareable, a site dedicated to wearable device reviews, describes it as “a multi-tasker doing nothing particularly well.”

Asutek (TPE: 2357), the world’s fifth-largest PC manufacturer, launched its Android-powered ZenWatch earlier this year in the US and Japan and plans to roll out two additional smartwatches in 2015 in a bid to become a dominant player in the wearables market.

Consumers in the US and Japan have responded well to the ZenWatch, Asutek chief executive Jerry Shen said, in remarks to the audience at a December product launch for the device in Taipei. Shen did not reveal sales figures, but added that the ZenWatch would be released in China, Hong Kong and Europe in the future.

The Taipei-based startup JoyRay Technology, meanwhile, is focusing on wearables for children. Its open-platform Jumpy smartwatch, which can run Android or iOs, is slated for release later this year. Founder and chief executive officer Jerry Chang worked in Foxconn’s smartphone business group for more than eight years before leaving in December 2013 to launch JoyRay. As Chang’s ties with the world’s largest contract electronics maker remain strong, Foxconn will produce the Jumpy watches.

Chang had the idea to found JoyRay when he observed the fascination of his young son with one of the Foxconn smartwatch prototypes he showed the boy. “I realized there was tremendous potential in the children’s smartwatch market,” Chang says.

Jumpy faces a slew of global competitors, but Chang believes the device’s large screen, detachable watch head and varied apps will help it to stand out. “Most kids use smartwatches for two weeks and then lose interest,” he says. “Jumpy will keep kids engaged with educational, exercise, and entertainment apps that will be regularly updated and encourage interaction between kids and between parents and kids.”

Proceeding with caution  

Despite the steady rollout of new wearable devices, some industry observers remain skeptical about the products’ viability. Gartner found just 40% of wearables users between 2011 and 2014 replaced a wearable device at the end of its lifecycle. That low replacement rate does not augur promise for wearable technology, Gartner principal analyst Amy Teng says, adding that wearable devices could follow a similar trajectory to tablets.

Tablet shipments surged after the introduction of the iPad in 2010. But as vendors flooded the market with devices over the next few years, consumers felt little reason to upgrade to newer models that differed scantly from their predecessors. As a result, tablet shipments fell for the first time in 2014.

Taiwanese tech firms should look to integrate wearable technology into a larger service platform, say Jeremy Huang and Jessica Hsu of MIC. They offer Disney’s $1 billion MyMagic+ technology as an example. A key part of that technology is the MagicBand, a bracelet linked electronically to an encrypted database of visitor information. Within a Disney theme park, it serves as an admission ticket, hotel key, credit card or debit card. If the technology is successful, it may spread to airports, malls, museums and zoos, analysts say.

For now, Teng urges prudence on wearable technology. “We all want this market to continue to grow, but the products are still at an experimental stage,” she says. “Consumers have to be convinced of their value.”

Photo: Jumpy smartwatches for children. 

Photo by: JoyRay