FRAMINGHAM, MA – The worldwide smartwatch market fell 32% year-over-year in the second quarter, the first time the segment has declined.

Smartwatch vendors shipped 3.5 million units during the period, according to International Data Corp.

Apple held the top rank, shipping 1.6 million watches. However, it was the only vendor among the top 5 to experience an annual decline in shipments.

"Consumers have held off on smartwatch purchases since early 2016 in anticipation of a hardware refresh, and improvements in WatchOS are not expected until later this year, effectively stalling existing Apple Watch sales," said Jitesh Ubrani, senior research analyst for IDC Mobile Device Trackers. "Apple still maintains a significant lead in the market, and unfortunately a decline for Apple leads to a decline in the entire market. Every vendor faces similar challenges related to fashion and functionality, and though we expect improvements next year, growth in the remainder of 2016 will likely be muted."

"To date, only a small handful of traditional watchmaker brands have entered the smartwatch market, trailing far behind their technology brand counterparts," said Ramon T. Llamas, research manager for IDC's Wearables team. "This seems to be changing, albeit slowly, as key vendors like Casio, Fossil, and Tag Heuer have launched their own models to the market. Still, participation from traditional watchmaker brands is imperative to deliver some of the most important qualities of a smartwatch sought after by end-users, namely design, fit, and functionality. Combine these with the brand recognition and distribution these brands already have, and it's reasonable to expect the smartwatch market to grow from here.

"What will bear close observation is how the smartwatch market evolves from here," said Llamas. "Continued platform development, cellular connectivity, and an increasing number of applications all point to a smartwatch market that will be constantly changing. These will appeal to a broader market, ultimately leading to a growing market."

IDC expects the market to return to growth in 2017. Exactly when that rebound will happen depends heavily on when vendors drive a better use case, says the firm.

Despite a down quarter, Apple remains far and away the market leader in smartwatches, says IDC. Watch 2.0, along with updates to watchOS, could help drive existing users to refresh and a wave of first-time buyers.

Samsung has done well with distribution though American telcos, and this has paid off, as Samsung holds the number 2 position among the top 5 smartwatch vendors. In particular, the Gear S2 lineup is off to a great start, as Samsung has successfully decoupled the smartwatch from the smartphone. Focusing on the telco channel to drive future success in telco-driven markets is likely to remain the core strategy for Samsung moving forward, says IDC.

Lenovo continues to be the smartwatch of choice for those interested in Android Wear-based circular displays. Moto's recent attempt to branch out to the fitness market with the Moto 360 Sport has been met with mixed results, as the device still lacks some of the benefits of fitness-first devices from the likes of Fitbit, Garmin, or others.

LG Electronics’ Watch Urbane recently introduced an SKU supporting LTE connectivity. Like Samsung, LG's growing presence in the US telco channel has proven beneficial as the operators seek new revenue streams. Though LG is first to offer an LTE-enabled Android Wear watch, the lack of complete support from Google stifles the device’s aspirations, says IDC. (Android Wear 2.0 is set to launch later this year with support for LTE.)

Rounding out the top 5, Garmin has almost doubled its share since last year, introducing new smartwatches like the Fenix 3. Though the number of apps and Connect IQ-enabled devices has grown over the past year, they still remain relatively small and cater to a niche audience: athletes.

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