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Apple Fitbit Results Show Smartwatch Market Becomes More Profitable

James Park

Mark Neuling | CNBC

On Tuesday, the earnings call, Apple CEO Tim Cook praised his company for sticking to wearables "when others might not have done."

A day later, the CEO of Fitbit James Park struck a completely different tone, telling investors in a press release that "we are disappointed with the lower guidance for the year."

Apple's shares rose 2.6% Wednesday, closing at its high rating this year. Shares of Fitbit closed at a record low on Wednesday and then plunged over 1

5% in long-term trading after the smartwatch manufacturer's earnings report.

This is a tale of two companies, told in 24 hours. Apple is the icon of the consumer electronics business, highlighting its dominance in smartphones in the market-leading position of watches while keeping people in its ecosystem. Fitbit is a challenger who is innovative in fitness tracking and has built a solid business before receiving steam work from the industry's superpowers while moving to more sophisticated smartwatches.

Apple's wearable business, which includes AirPods, Apple Watch and Beats headphones, posted a 48% quarter-over-quarter increase of $ 5.53 billion a year, with CFO Luca Maestri saying the category's growth is accelerating 50%.

Fitbit sales grew only 4.8% in the quarter to $ 313.6 million.

At the end of 2018, Apple controls 50% of the global smartwatch market in terms of units shipped, according to Strategy Analytics. Fitbit came in second with 12.2%, followed by Samsung selling Android devices at 11.8%.

In an effort to remain competitive, Fitbit reduces prices, leading to a reduction in its gross margin or profit remaining after subtracting the cost of goods sold, to 34.5% from 39.8%.

Fitbit points to lower-than-expected sales on its Versa Lite device, a lightweight smartwatch that was introduced earlier this year because of its disappointing numbers and dropped in the middle of its 2019 earnings guidance to 1. $ 46 billion of $ 1.56 billion.

Following its subsequent dive, Fitbit is already worth less than $ 1 billion. It lost 82% of its IPO value in 2015.

Park is trying to reduce its company's dependency on device sales and focus more on premium services, which will create a "longer lasting customer relationship, while changing the perception of products and services from the good that it should be, "the chief executive said in a earnings call on Wednesday.

But Apple is also doing this with a much wider range of services that run on many different types of devices. Revenue in the Apple services business, which includes the App Store, Apple Care, Apple Pay, iCloud and Apple Music, increased 13% to $ 11.46 billion in the quarter.

WATCH: Fitbit CEO James Park talks about affordable innovation

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