1 Potential Red Flag for Apple's iWatch

Although it has yet to be announced, plenty of investors, analysts, and tech observers are expecting tech powerhouse Apple to unveil its much-discussed iWatch at some point in 2014.

Short of an actual announcement, there are still plenty of reasons to believe Apple has a smart watch waiting in the wings. But if one recent report holds even a glimmer of truth, the world's largest publicly traded company still has a very long way to go before its iWatch is ready to hit the shelves.

Source: Apple

Production problems persist
According to reports, it appears yields on a key component of Apple's iWatch have been absolutely abysmal.


Citing sources with detailed knowledge of Apple's upstream Asian supply chain, Taiwanese tech site Digitimes has claimed Apple is currently seeing yields of lower than 50% for some portion of its iWatch manufacturing process, specifically with the metal injection molded chassis production process, or MIM for short. This is a common manufacturing process that enables the mass fabrication of products with complex industrial designs.

And apparently it's giving Apple fits in the case of the iWatch.

Now before getting too carried away with the news, it's worth noting that Digitimes has a somewhat dubious history when it comes to these kinds of rumors, so take it with a grain of salt. But given Apple's penchant for complex and highly customized product designs, it's not too far fetched to think Apple could be encountering such issues. The news also seems plausible as Apple isn't the only tech name struggling with production yields with its smart watches. The rumor mill has also cited Qualcomm as encountering similar production-process issues with its Toq smart watch as well.

And if these rumors indeed prove correct, it could mean bad news for Apple and its investors as the smart watch market as a whole appears set to take off in 2014 with or without Apple.

Competition rising
This could be a defining year for the smart watch. Aside from tech companies like Qualcomm and Samsung that already have smart watches on the market, names including the likes of Google, Nokia, LG, Nike, Microsoft, and many more have also been referenced as either having smart watches currently in development or serious plans to do so under way.

But even with so many names possibly developing their own smart watches, sales are predicted to remain muted on an absolute basis for 2014. Recently, the chief economist of the Consumer Electronics Show, which began yesterday, predicted the smart watch market would only ship 1.5 million units in 2014.

Between the relatively limited options currently available and the reported manufacturing difficulties, it certainly seems plausible that this growth market could still be some time in the making. But with the global watch industry generating around $60 billion in annual sales, it seems there's ample economic opportunity in this space.

Apple could still change the game
Although there are only rumors to support the notion at the moment, it certainly seems Apple is once again perfectly positioned to add the watch industry to the long list of things it has helped revolutionize.

True, Steve Jobs is no longer calling the shots at Apple. And yes, current Apple CEO Tim Cook isn't known as a "product guy." But as a company, Apple's true expertise has always been in attractively integrating hardware and software into a powerful ecosystem that developers love to support.

But in order to revolutionize the global watch industry, it appears Apple could have to overcome its fair share of supply-chain issues in order for its next game-changer to hit the market in 2014.

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The article 1 Potential Red Flag for Apple's iWatch originally appeared on Fool.com.

Fool contributor Andrew Tonner owns shares of Apple. The Motley Fool recommends Apple, Google, and Nike. Follow him on Twitter @andrewtonner. The Motley Fool owns shares of Apple, Google, Microsoft, Nike, and Qualcomm. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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