In late December 2023, Apple faced sales suspension of certain Apple Watch models in the United States due to concerns over patent infringement with Masimo’s blood oxygen detection technology.

Despite Apple’s appeal for reinstatement, regulatory authorities will review updated designs presented in mid-January 2024 to determine whether sales suspension persists. The potential financial and time costs associated with settlement or redesign may prompt Apple to reassess the necessity of incorporating blood oxygen detection.

TrendForce’s insight:       

Apple and Masimo’s Prolonged Legal Battle Set to Conclude in Mid-January 2024, Verdict on Blood Oxygen Monitoring Patent Infringement

Since the introduction of the S6 in 2020, Apple Watch has featured blood oxygen monitoring technology, addressing the demand for detecting hidden hypoxia and hypoxemia, particularly in the context of the COVID-19 pandemic. Many smartwatches released during the same period also incorporated this functionality.

The blood oxygen monitoring technology in Apple Watch utilizes traditional pulse oximetry. The built-in sensor consists of red, green, infrared LEDs, and a photodiode sensors that converts light into electric current.

In essence, the technology relies on shining light onto wrist blood vessels to capture data on the difference between oxygenated and deoxygenated blood. Algorithms are then employed to determine the blood oxygen content.

Hence, this technology involves not only software-related analytical applications but also hardware configurations and usage considerations.

In fact, the infringement dispute between Apple and Masimo has been ongoing. Since 2020, Masimo has accused Apple of patent infringement. The legal battle continued until October 2023 when the U.S. International Trade Commission (ITC) ruled in favor of Masimo, determining that Apple had indeed infringed. Consequently, in late 2023, a sales ban was imposed on certain models of Apple watches.

Despite Apple’s appeal allowing them to resume sales, regulatory authorities will reassess Apple’s redesigned models in mid-January 2024 to determine if improvements have been made.

Currently, the most severe impact of the ban is on models with blood oxygen functionality from the S6 onwards, including the S8, while only the SE series, without this feature, remains unaffected.

Diminished Need for Blood Oxygen Monitoring in Temporal Context – Apple May Reconsider Necessity

Given the current situation, there are several possible developments. Firstly, Apple may reapply for approval of a redesigned model by regulatory authorities, allowing them to resume sales after making necessary adjustments.

However, this approach involves not only software modifications but also hardware changes, encompassing testing, review processes, and relaunching, which could take several months. Considering Apple’s usual product release schedule in September each year, the company faces significant time pressure.

Secondly, Apple may opt for a settlement with Masimo. In the past, Apple has resolved disputes over chip technology and intentional slowdown of older devices with Qualcomm and in collective lawsuits with users.

However, settlement amounts were substantial, approximately $4.5 billion with Qualcomm and potentially up to $500 million in the case of collective user lawsuits. Compared to Apple Watch’s annual revenue in 2023, which may not have reached $20 billion, such outcomes may be less favorable for Apple.

If Apple cannot bypass Masimo’s patent through updates, settlement and payment of ongoing patent fees may become a necessary consideration. However, this to some extent may prompt Apple to reevaluate the necessity of the blood oxygen monitoring feature.

After all, for smartwatches equipped with blood oxygen monitoring is intended for health, not medical purposes. Besides Withings’ products, most smartwatches with this feature have not obtained approval from the U.S. Food and Drug Administration (FDA). In other words, they cannot be used for medical purposes.

While having more features at the same price would enhance the product value for consumers, the current context of the post-pandemic era and Apple’s user loyalty suggest that the demand for additional functionalities may vary.

If Apple does not intend to further integrate blood oxygen data with other physiological data, there might be room to reconsider the necessity of redeveloping the technology and the continued existence of the blood oxygen monitoring feature in future Apple Watches. The value of incorporating such functionality may be subject to greater flexibility in this scenario.

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(Photo credit: Apple)

Google focuses on AI and sensor upgrades with Pixel Watch 2, while Charge 6 smart wristbands may stand out in the market through AI applications.

TrendForce’s Insights:

In early October 2023, Google held its annual fall product launch event, introducing new smartphones, smartwatches, earphones, and AI assistant services. Regarding the Pixel Watch 2, Google opted for a relatively conservative upgrade compared to its competitors, with more significant changes expected in the smart wristband market through the application of generative AI.

1. Google’s New Products Align with Industry Trends, Focusing on AI – Pixel Watch 2 Highlights Sensor Upgrades

The third quarter of the year is an important period for major tech companies to hold product launch events. Following Apple’s event in September and the recently concluded Meta event, Google also hosted its Made By Google fall event in early October. Much like these other companies, Google focused on AI as the central theme of the event, enhancing its range of products and services. The highlights of this event include the Pixel 8 series smartphones, featuring AI-powered image editing, the Pixel Watch 2 with new sensors and monitoring capabilities, and the Pixel Buds Pro smart headphones that can adjust audio settings based on the user’s conversations. Additionally, Google, being a leading player in Generative AI, introduced an AI version of its Google Assistant service called “Assistant with Bard,” which is expected to enhance its app offerings through quick organization, predictive capabilities, and content generation, with deployment on a wider range of devices in the future.

A closer look at the specifications of the Pixel Watch 2 reveals that, compared to its predecessor released just a year ago, the hardware upgrades are not substantial. The primary differences include changes in the watch case material to align with environmental concerns, an upgraded processor, and a slight increase in battery capacity. However, the most significant improvements are in the sensors. The Pixel Watch 2 builds upon its existing features by introducing an electronic sensor for continuous skin conductance monitoring and a skin temperature sensor. Additionally, it has replaced the previous optical heart rate sensor with a multi-path sensor, enabling more precise measurements in different physiological conditions. This allows the watch to provide users with more accurate data, including temperature, heart rate variability (HRV), and other metrics.

Enhanced by advanced AI algorithms, the Pixel Watch 2 can analyze users’ sleep quality, stress levels, activity duration, and calorie expenditure. This allows the watch to provide all-day body response tracking, stress notifications, and guided breathing exercises, offering a range of new features.

2. Google Struggles in the Smartwatch Market; Smart Wristbands Poised for Market Differentiation through AI

Google’s latest release, the Pixel Watch 2, follows a strategy similar to that of other major players like Samsung and Apple in the smartwatch market. It represents a modest upgrade with little change in external appearance, and hardware specifications closely align with existing products in the market. On the software front, besides the new stress management features, other additions such as security checks, emergency sharing, and fall detection closely resemble those of the previous generation.

The primary reason for this conservative approach lies in the challenging global economic conditions and a declining industry landscape. Google’s smartwatch products face relative weakness in the market, lacking the extensive user base and brand loyalty enjoyed by giants like Apple, Samsung, and Huawei. Google also lacks the niche market segmentation seen in players like Garmin. These factors collectively position Google in a cautious stance regarding the development of smartwatches.

While Google has displayed a bit of hesitation in the smartwatch sector, its recent introduction, the Fitbit Charge 6 smart band, has garnered significant attention. Although its price exceeds that of the Huawei Band 8 and Xiaomi 8 Active, released later in 2023, by several folds, the Charge 6 leverages Google’s resources and hardware-software upgrades to emphasize its value. For instance, it incorporates a new machine learning algorithm derived from the Pixel Watch, ensuring more accurate heart rate monitoring. This marks Google’s first smart band integrated with Google Apps, offering seamless integration with widely used applications such as Google Maps, Google Wallet, YouTube Music, and more.

Furthermore, Google has hinted at the development of generative AI features during the Made by Google event. These AI-driven features are anticipated to analyze fitness trends and provide insights through chatbots, with potential integration into smartwatches and smart bands. With these advancements, Google aims to elevate its smart bands’ reputation through AI applications, setting it apart in the market, even in comparison to competitors like Huawei and Xiaomi.

Smart watch shipments reached 107 million units in 2021, surpassing the shipments of smart bands for the first time. Smart bands declined in 2021 with only 70.33 million units delivered. As branded manufacturers strengthen their investment in the smart watch market, market growth has accelerated. Due to the proximity of functional applications, the smart band market has been gradually supplanted by low-cost smart watch products. Therefore, driven by new products in 2022, the current forecast indicates that smart watch shipments will continue to grow in 2022, reaching 119 million units, for an annual growth rate of 11.4%. Smart band shipments are expected to decline to 55.18 million units and the gap between the two continues to widen. It is worth noting, although branded manufacturers are optimistic regarding the development of the smart watch market, in light of risks such as the COVID-19 pandemic, war, and inflation, continuing downward revisions of smart watch shipment volume in 2022 cannot be ruled out and annual growth rate may even fall below 5%.

The top five major manufacturers of smart watches are Apple, Samsung, Huawei, Xiaomi, and Garmin with a combined market share of 63%. Apple Watch shipments reached 36.6 million units in 2021, with an annual growth rate of 20%. Apple is optimistic regarding the market in 2022. On the one hand, the company believes that the Watch Series 8 can maintain the same consumer interest as the Watch Series 7. On the other hand, a wave of entry-level product replacements is expected with the launch of the second-generation Watch SE. Coupled with the launch of new Pro products, Apple believes that market demand in 2022 will surpass that in 2021 and shipment volume is expected to reach 43 million to 46 million units.

However, considering the negative economic impacts following the wake of the COVID-19 pandemic and inflation, 4Q22 holiday sales may not pan out as expected. Throwing in the wildcard of China’s lockdown strategy, production of new Apple Watches may be affected if lockdown measures reappear in 2H22, which will lead to a risk of further delays in shipments of new products, upsetting shipments in 2022. Therefore, shipments of Apple Watches are conservatively forecast to reach 39.1 million units in 2022.

Although Samsung began exploring the wearable device market very early, due to the small market size and the rapid growth of the smartphone market, smart watches were not the focus of Samsung’s product development at the time. This was true up until recent years. As the growth of smartphones slowed, Samsung has once again strengthened its distribution of other consumer electronics products which has led to continuous growth in Samsung Galaxy Watch shipments. In addition, since Huawei has been flattened by Sino-US trade friction, Samsung leaped to claim the number two spot in the smart watch market in 2021. Samsung smartwatch shipments are estimated to grow from 11.09 million in 2021 to 14.1 million units in 2022.

After Google officially acquired Fitbit, although Fitbit remains nominally an independent brand, internal reorganization is bound to be carried out considering this affords more efficient resource allocation, integrating the companies’ procurement, product development, etc. Google will have two smart watch brands, Fitbit and Pixel. In terms of high-end watches, the Pixel Watch is a flagship product positioned as an extension of the Pixel mobile phone and is primarily used in synergy with smart phone functionality. Therefore, the Pixel Watch uses the Samsung Exynos chip and it is expected to highlight the features of various apps in the Google Play Store. Since Fitbit was acquired by Google, it has become necessary to adjust unified strategy and integrate and reorganize resources. Although smart watch shipments resumed growth in 2021, there is some distance between leading brands. Fitbit Is expected to launch new products in 2H22. Google Pixel Watch is also expected to be launched in 2H22, so Google/Fitbit smart watch shipments are estimated to grow to 3.65 million units in 2022.

（Image credit: Pixabay）