Apple (AAPL) Leads the Wearables Space Courtesy of Watch 3

Per a research report by Canalys, Apple Inc AAPL was the market leader in the wearables bands space in the third quarter of 2017, benefiting from the launch of Watch Series 3.

Canalys analyst Jason Low stated that “strong demand for the LTE-enabled Apple Watch Series 3 has dispelled service providers’ doubts about the cellular smartwatch not appealing to customers.” He also added that Apple Watch 3 hasn’t reached its “full potential” as service providers underestimated its demand.

In the third quarter of 2017, Apple took the lead with shipments of 3.9 million units including 800,000 LTE editions.

Apple called Watch series 3 as the “ultimate expression of Apple Watch” at its key note address at the September event. Integrated with a built-in cellular and Apple Music, the Watch is powered by a new dual core processor, which is 70% faster than its predecessor. Users can now call, text as well as access GPS and third-party applications like WeChat with the Watch.

Apple had touted the built-in cellular as the USP of the Watch. However, initially, the Watch had troubles connecting to LTE. A bug caused the watch to join unauthenticated Wi-Fi networks, thus preventing it from connecting to cellular networks. In October, Apple released the watch OS 4.0.1 update to Apple Watch Series 3, which fixes the bug.

We note that Apple doesn’t provide any data on Watch sales. On its last earnings conference call, the company said that Watch sales were up 50% for the third successive quarter while the entire wearables business was up 75% year over year.

Though its current contribution to the top line is minimal, Watch underscores Apple’s efforts to reduce its dependence on iPhone. iPhone sales constitute the major chunk of Apple’s revenues.

Apple Inc. Revenue (TTM)

Apple Inc. Revenue (TTM) | Apple Inc. Quote

Coming back to the report, Xiaomi and Fitbit FIT occupied the second and third spots in the wearables space with shipments of 3.6 million and 3.5 million units, respectively. Overall, the market was down 2% to 17.3 million units, marred by falling demand of basic bands, added the report.

Zacks Rank and Share Price Movement

Apple carries a Zacks Rank #3 (Hold). Notably, the company has outperformed the industry in the past year. Shares of Apple have surged 55.8% compared with the industry’s 54% rally.

Stocks to Consider

Better-ranked stocks in the broader technology sector include NVIDIA Corporation NVDA Applied Materials AMAT, and Jabil Inc JBL. While NVIDIA and Jabil carry a Zacks Rank #1 (Strong Buy), Applied Materials carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Long-term earnings growth rate for NVIDIA, Applied Materials and Jabil is currently projected to be 11.2%, 17.1% and 12%, respectively.

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