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Fossil-Google's Deal Reflects Focus on Wearables Category

Zacks Equity Research

Fossil Group, Inc. FOSL unveiled plans to sell its intellectual property (“IP”) connected to a smartwatch technology to Google for $40 million. Well, this smartwatch technology is currently being developed by Fossil. As part of the deal, a particular section of the company’s R&D group will be shifted to Google.

Nevertheless, Fossil will continue to have a team of more than 200 members for its own innovation and development.

Notably, the deal between Fossil and Google reflects their focus on the wearables space, which has been gaining traction for a while now. In fact, the company generates solid business from this category of watches, which is also providing cushion to the company that is facing lackluster sales of traditional watches.

Markedly, the introduction of wearable technology in watches has offered ample opportunity to Fossil to extend reach of brands and offer customers new functionality with accessories, including activity trackers, hybrid watches and smart watches. Notably, the company is benefitting from Android’s popularity and Google’s technology in its watches. The company recently launched approximately 14 new hybrid and smartwatches across several brands. Driven by such efforts, the company’s connected watch jumped almost 30% year over year in the third quarter of 2018. Also, wearables contributed roughly 18% of the company’s total watch sales in the quarter, marking a steady improvement from 13% in the year-ago period.

As the wearable business is expected to grow $32 billion by 2020, Fossil’s efforts to expand bode well. To this end, partnerships with Qualcomm and Google as well as addition of new brands to its smartwatch line-up in 2018 are likely to enrich Fossil’s wearables portfolio. In fact, strength of this business helped the Zacks Rank #2 (Buy) stock to rally considerably in a year’s time, against the industry’s decline of 21%.

Progressing on these lines, the company is launching a new smartwatch at a competitive price for the first time.  This product will include Qualcomm Snapdragon Wear 3100 Platform and the redesigned Google Wear operating system to best suit customers’ changing needs. Also, the company joined hands with Citizen Watch Company to boost growth in the hybrid smartwatch category. Currently, the company’s wearables segment is adorned by renowned brands such as Diesel, Emporio Armani, Fossil, Michael Kors and Misfit.

Clearly, the wearables market provides Fossil the opportunity to combine fashion and technology as well as introduce exciting products to cater to consumers’ evolving needs of tech-enabled advanced connected gears.

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