Why Galaxy Gear is no ‘game changer’ for Samsung

Thursday, 5 Sep 2013 | 12:00 AM ET
A Samsung Electronics Co. Galaxy Gear watch and Galaxy Note 3.
Jin Lee | Bloomberg | Getty Images
A Samsung Electronics Co. Galaxy Gear watch and Galaxy Note 3.

After months of anticipation, Samsung's much-hyped Galaxy Gear is unlikely to be a game changer for the South Korean consumer technology giant, say market watchers, even after the company beat rival Apple to the punch with the launch of its inaugural smartwatch in Berlin Wednesday.

The smartwatch is an "expensive accessory" with a limited target market given its $299 price tag, said Daniel Kim, analyst at Macquarie. The device, which must be paired with a Samsung phone or tablet, can make calls, receive emails, take pictures, run its own apps and has a voice control function.

(Read more: Poll: Would you buy a Samsung smartwatch?)

"I have been skeptical about the smartwatch market. How many people will pay $299 for a nice accessory, and how many people will replace their existing watch for this smartwatch. I'm not sure," Kim told CNBC on Thursday. For example, the price point of the Galaxy Gear is double that of the Pebble – a popular Kickstarter-funded smartwatch that sells for $150.

"The screen size is 1.6 inches. There aren't many things you can do with this screen," he added.

(Read more: Samsung reveals smartwatch, new Galaxy Note)

Samsung expects to sell half a million smartwatches in the second-half – a small fraction of the average 25 million premium smartphones it sells each quarter, according to Kim.

Samsung smartwatch unveiled
CNBC's Courtney Reagan reports Samsung has created a smartphone for your wrist: a smartwatch; and Standard & Poor's believes the U.S. government is retaliating against it.

Ajay Sunder, senior director, Telecoms, Asia Pacific at Frost & Sullivan agrees that the Galaxy Gear is unlikely to be a "game changer".

"Samsung is testing the waters with its premium users who will be willing to pay a higher price point. It will be used for internal research, and they are likely to come up with a revised, more user-friendly product," he said.

While the financial impact of the Galaxy Gear will be negligible, its symbolic impact is more noteworthy.

(Read more: Samsung seeks 'iPod moment' with smartwatch launch)

"The symbolic impact is quite big; they showcased the product ahead of Apple and will start selling it earlier than Apple. It's also another step towards wearable technology" Kim said. The device is set to hit store shelves on September 25.

Samsung has called the Galaxy Gear a "fashion icon" making the sleek design available in a range of colorful watch straps; however it remains to be seen how the product will be received by the fashion-forward.

Samsung shares rose as much as 2.2 percent Thursday following the announcement of the smart watch, new Galaxy Note 3 smartphone and the 2014 edition of its tablet the Galaxy Note 10.1.

(Read more: Samsung's biggest fear? Becoming 'too full' of itself)

However, analysts say the company's new product line-up isn't behind the share price rise, but rather news that rival chipmaker SK Hynix has suspended operations at a factory in China - where 15 percent of its computer memory chips are produced.

"This is bad for Hynix and positive for competing DRAM (Dynamic random-access memory) companies such as Samsung," said Kim.

—By CNBC's Ansuya Harjani; Follow her on Twitter @Ansuya_H

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