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Apple Watch starts countdown on face off with Swiss industry

James Shotter and Tim Bradshaw
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Forty years ago, the Swiss watch industry nearly died. The advent of Japanese quartz watches, cheaper and more accurate than their mechanical Swiss rivals, drove many traditional watchmakers out of business.

Two generations on, a new question is occupying the country's watch industry: will Apple's new smartwatch be the prelude to a similar upheaval?

"I am sure that these devices represent a new market segment, and that, in the medium term, this segment will have more value than the traditional watch industry," says Elmar Mock, one of the inventors of the Swatch watch and founder of Creaholic , an innovation consultancy . "This new segment is a fantastic opportunity."

Analysts at Citi estimate that the smartwatch market could be worth $10bn by 2018 – and Apple is certainly bullish about its prospects. Tim Cook, chief executive, believes that Apple Watch would follow in the steps of its other blockbusters, such as the iPod and the iPhone, by redefining an entire category.

"We set out to make the best watch in the world," he said at last month's event, even before mentioning its fitness or communication features. "It's accurate within plus or minus 50 milliseconds. It's incredibly customisable."

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But functionality is not Apple Watch's only advantage – it is also backed by enormous financial firepower. The tech company's stock market capitalisation is larger than the entire Swiss watch industry, points out Jon Cox, head of Swiss equities at Kepler Cheuvreux.

Apple is also trying to position Watch as a fashion item as much as a timepiece. The device graced the cover of Vogue in China, the world's biggest watch market, and was showcased during Paris Fashion Week at boutique Colette.

Apple's fashion credibility has been boosted by hires such as Angela Ahrendts, former chief executive of Burberry, and Marc Newson, the highly-regarded industrial designer.

Read MoreApple Watch to debut on Vogue cover in China

But while Swiss watch executives are wary about the arrival of such a muscular rival, few see an existential threat to one of the Alpine nation's most famous industries.

First look at Apple watch
First look at Apple watch

One reason is that most do not see the Apple watch and Swiss watches as substitutes. While the Apple watch's main selling point is functionality, luxury Swiss watches are jewellery.

Prices reflect this. Apple's range of smartwatches will start selling at $349. Just 6 per cent of Swiss-made watches fall into the same price range as the entry-level watch. By contrast, 65 per cent of the Swiss watch industry is made up of watches with an export value of more than SFr3000 ($3,200) – or a retail value of more than SFr7500.

"When you are in the luxury sector, selling mechanical watches, you are not selling timepieces. It is more an emotion, or a lifestyle," says Patrik Hoffmann, chief executive of Ulysse Nardin, whose watches sell for between SFr8500 and SFr1m. "I don't think at all that this will change what we are doing."

Watchmakers at the lower end of the Swiss watch spectrum, which includes marques such as Tissot or Swatch, could well face disruption, according to Mr Cox. "But for the bulk of the industry, I don't see much impact," he says.

That reaction may recall BlackBerry executives' dismissal of the iPhone when the touchscreen challenger emerged to its then-dominant smartphone. It turned out to be a massive underestimation by the Canadian company, which has lost more than 90 per cent of its stock market value since Apple unveiled its phone.

But there are other reasons why Swiss executives expect the impact of smartwatches on their companies to be limited in the short term.

Read MoreApple Watch? Teens don't care

"If you buy a mechanical watch, the beauty is that it will still work in five years' time," says Stéphane Linder, chief executive of Tag Heuer. "There is no obsolescence. With a smartwatch, that is not necessarily the case."

Ariel Adams, founder of A Blog to Watch, a respected source for news and reviews of timepieces, agrees that the rapid pace of iteration and innovation in electronics may prove difficult to square with a market that sells family heirlooms.

"You can't replace the beauty, the personality, the soul of a high-end mechanical watch," he says. "But what you can do is crowd the space where it used to be on your body."

But Apple may win in the long term because of its functionality. The ever-expanding range of applications and ability to fit into a user's broader digital lifestyle is limited only by the imagination of the millions of developers who already earn their living from iPhone and iPad apps.

"Will a smartwatch ever be as beautiful as a mechanical watch with a real dial? Probably not," says Mr Adams. "But the question goes to how useful they are going to be."

Mr Mock is even more bullish than Citi on the sector's potential. He predicts that over 10 years, smartwatches could affect up to 30 per cent of the traditional watch industry.

"In the short term it is not danger knocking on the door, but opportunity, and it would be a shame if the Swiss watchmakers didn't take it," he says.

Geoff Blaber, technology analyst with CCS Insight, agrees. "Given the huge range of functionality and how that product evolves, I think inevitably there is a longer term impact," he says.

Even Tag Heuer's Mr Linder admits that his new competitors will not stand still. "The next question is whether [smartwatches] will evolve. If they develop into something that is better than a phone, that is more universal, and whose functions are so great that everyone has to have them, then they could be a threat."

For this reason, Tag Heuer is looking into the possibility of making a smartwatch of its own. The brand has some experience in the area, having made one for the Oracle team in last year's America's Cup, which informed sailors about the speed of their boat and the tension in its sails.

However, Mr Linder says the group will only produce a smartwatch if it can find the right functions. "The question for me is: what would be the feature which is universal and does not damage the quality of a luxury watch? Is the watch still timeless?" he says. "And until we find the answer, we should not do something like this."

Smartwatches to move up a gear as awareness grows

Apple's entry to the smartwatch market is expected to galvanise consumer awareness of the new technology in a way that Samsung has not, even though the Korean group launched its own device more than a year ago.

Analysts at Forrester Research predict that Apple will sell more of its device in its first year than the rest of the market has sold collectively.

Samsung said last year it had sold 800,000 of its Galaxy Gear smartwatches in its first two months, but has not provided detailed sales figures subsequently.

In June, research group NPD said Samsung made up more than three-quarters of the $96m worth of smartwatches sold in the US since the previous October. That means only a tiny proportion of Samsung customers have paired their smartphone with one of its watches.

One problem is that many potential smartwatch buyers do not yet feel they need another device.

Read MoreApple Watch design: Good or bulky?

"The smartwatch has not yet been proven," says Mr Adams. "While we have a lot of faith in Apple, it's still a yet-to-be-released product."

But he predicts that they will become popular as consumers become more accustomed to the idea of using a timepiece in this way.

"Not even considering things like fitness, Apple Pay and mapping, the mere fact that you can spend less time staring at your phone is a value in itself," he says. "A lot of people are highly sceptical of the smartwatch because they've never tried one."