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Why Fitbit Dropped to Third Place in Wearables Rankings

June 5, 2017, 2:49 PM UTC

Fitbit fell to the third place among makers of “smart” wearables for the first time in the first quarter, according to market tracker International Data Corp. Chinese gadget maker Xiaomi tied with Apple to ship the most wearables in the quarter, IDC said.

Fitbit, which first hit the market in 2009, has long led they category with its popular line of wrist worn fitness trackers. But after years of rapid growth, the company stumbled in 2016 with manufacturing mistakes, unexciting upgrades and a collapse in demand from Chinese consumers. The company’s stock price has dropped 63% over the past year amid the struggles. Still, Fitbit is expected to announce its first true smartwatch later this year, which could reignite interest.

“Fitbit finds itself in the midst of a transformation as user tastes evolve from fitness bands to watches and other products,” Ramon Llamas, research manager for wearables at IDC, said in the report released on Monday. Llamas continued:

However, by no means should Fitbit be removed from the wearables conversation. With a user base of 50 million, a strong presence within corporate wellness, and assets that keep it top of mind for digital health, Fitbit is well positioned to move into new segments and markets.

The lower end of the market, consisting of less expensive devices with fewer functions, was the most challenged in the quarter, hitting Fitbit. The company (FIT) shipped only 3 million devices in the first quarter, a 38% drop from the same period a year ago, IDC said. Xiaomi, which aims at the low cost end of the market, saw its shipments drop 3% to 3.6 million.

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But it was Apple’s higher-end smartwatch, Apple Watch, along with Samsung’s Gear S3 watch, that drove the overall market higher, IDC said. Apple shipped 3.6 million watches, up 64% from last year, while Samsung’s shipments rose 91% to 1.4 million. The success of Apple Watch, which runs Apple’s proprietary WatchOS software, and the Gear S3, which runs Samsung’s Tizen software, isn’t good news for Google’s (GOOGL) Android Wear operating system. None of the five largest shippers of wearables used its program.

Samsung ranked fourth overall, followed by Garmin (GRMN) in fifth place, with a 2% increase to 1.1 million devices shopped.

In total, the wearables markets expanded by 18% to 24.7 million devices, IDC said.

Despite the growth and volatility in the rankings, IDC analysts said the market was still just a fraction of the size it would ultimately become. Companies are still trying just to entice consumers to get accustomed to wearing a smart device, senior research analyst Jitesh Ubrani said.

“The second phase of development will be all about putting user data to good use,” Ubrani said in the report. “This is when step counts translate into healthier hearts and minds. And it’s also when we will start to see devices that actually augment our abilities and make our lives easier or more productive rather than just being another screen we keep an eye on.”

Apple (AAPL) may start to move in that direction on Monday. The company is holding its annual World Wide Developer Conference and is expected to unveil an update too its smartwatch software, among many other announcements.