The coming Apple Watch won't need to be linked to an iPhone to make calls or stream music

  • Apple is gearing up to release a new Apple Watch with cellular connectivity.
  • It will not require tethering to an iPhone for key functions like calls, messaging, and streaming music.
  • The third Apple Watch is expected to be unveiled at the company's September iPhone launch event.

Apple is gearing up to release a new Apple Watch which will not require tethering to an iPhone for key functions like calls, making it a standalone device, a source with knowledge of the matter told CNBC.

The U.S. tech giant will launch the next generation Apple Watch in September, the source said, when it is also expected to take the wraps off three new iPhone models.

Apple Watch has always been required to be linked to an iPhone in order to receive texts or make calls. But the next generation version will have cellular connectivity, likely via an embedded SIM rather than physical SIM card users will have to put in.

Adding cellular connectivity will allow people to carry out tasks such as streaming music without the need for an iPhone present.

A September unveiling also makes sense because Apple has already announced plans to release watchOS 4 — its wearable operating system — in the fall. This will include new features around music as well as a Siri-based watchface, both of which would benefit from standalone watch capabilities.

'Win win'

But cellular connectivity is very battery draining and this could be a problem for Apple. But if Apple can create a battery efficient device, then it will be a big positive, analysts said.

"It is a win win for Apple as it will drive up the average selling price of the device because they will be more expensive," Neil Shah, research director of devices and ecosystems at Counterpoint Research, told CNBC, by phone on Tuesday.

"It will cater to the niche market of health and fitness users who don't want to carry their iPhone when they go for a run. It will also be good for enterprise use cases."

CNBC's source backs up an earlier report from Bloomberg which said that Intel will supply the modems required for cellular capability on the Apple Watch. That report also said AT&T, Verizon, Sprint, and T-Mobile US plan to sell the device, citing sources.

Apple could also be seeking partnerships with carriers in Europe, CNBC understands.

An Apple spokesperson was not available for comment at the time of publication.

Growing ambitions

On Monday, more news about the cellular-capable Apple Watch came to light. Noted Apple analyst Ming-Chi Kuo from KGI Securities said that the next Apple Watch would have a cellular and non-cellular model and ship in two sizes: a 38mm and 42mm case.

The first Apple Watch was announced in September 2014 alongside new iPhones. The Apple Watch Series 2 was unveiled two years later, again alongside iPhones. It appears, however, that Apple is shortening the time it takes to announce another Apple Watch, given the third version is likely to be announced in September.

It could hint at Apple's growing ambitions for the device. Chief Executive Tim Cook, for example, has called health care an "enormous" opportunity with the Apple Watch potentially becoming a device to constantly monitor the body. CNBC reported earlier this year that Cook was recently spotted on the Apple campus trying out a prototype glucose-tracker on the Apple Watch.

While the wearable market has not taken off as many expected, Apple appears to have been performing well. Apple shipped 2.8 million watches globally in the second quarter of 2017, up 56 percent year-on-year, according to Strategy Analytics. It has 13 percent market share, just behind Fitbit and China's Xiaomi. But Apple has previously held the top spot in the market and a souped up Apple Watch may help it reclaim that title, analysts said.

"The rumored upcoming Watch Series 3 launch with enhanced health tracking could prove to be a popular smartwatch model and enable Apple to reclaim the top wearables spot later this year," Strategy Analytics said in a note earlier this month.

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