By Silke Koltrowitz
BASEL, Switzerland (Reuters) - Swiss watchmakers, who once dismissed smartwatches as short-lived gadgets, are now racing to grab a share of a fast-growing market via technology partnerships and stepping up investments.
Shipments of smartwatches overtook traditional watches in the final quarter of 2015, according to Futuresource Consulting.
While their rapid rise has so far had little impact on Swiss watchmakers, because of the latter's focus on higher prices, the industry started to look seriously into the potential for luxury smartwatches after the success of the Apple Watch last year.
Now the race is on to grab a chunk of a smartwatch market expected to grow from $1.3 billion in 2014 to $117 billion in 2020, according to researchers Smartwatch Group.
"Next year, we'll have a real collection, a new version with six to eight models," LVMH's head of watches and jewelry Jean-Claude Biver told Reuters at an industry fair this week, referring to smartwatches at its Swiss brand TAG Heuer.
TAG Heuer partnered with U.S. technology firms Google <GOOGL.O> and Intel <INTC.O> last year for its TAG Heuer Connected watch, and said the first 15,000 units offered at just under 1,400 Swiss francs ($1,446) apiece sold out quickly.
"We totally underestimated demand, we were too cautious," Biver said at the Baselworld watch and jewelry fair, adding the brand had invested about 10 million Swiss francs in the project so far.
He said he was expecting to sell a further 40,000 to 50,000 pieces this year. From September, they would be assembled in Switzerland on a line set up by Intel.
"Nobody knows what will happen with smartwatches. Of course, we could just watch this train from afar to see where it goes, but I prefer to be on board," Biver said, adding connected watches could ultimately represent a third or even half of TAG Heuer's sales.
Also at Baselworld, Swatch Group's <UHR.S> Tissot, one of the more affordable brands of the world's biggest watchmaker, presented its first connected model, the Tissot Smart-Touch, that lets users connect to their smartphone as well as to other external services, such as weather stations.
"Swatch Group is the only Swiss watchmaker able to do a smartwatch on its own," Tissot Chief Executive Francois Thiebaud told Reuters. Swatch Group launched a connected watch under its Swatch brand about ten years ago.
Thiebaud said the Smart-Touch's advantages over existing smartwatches were its much longer battery life of up to one year, rechargeable via a solar panel, and the fact the watch continued to function as a "normal" watch once the connected technology was outdated.
"Other smartwatches are miniature smartphones on the wrist, while our product's first purpose is to indicate the time," Thiebaud said. He said the brand was aiming to sell 20,000 to 40,000 Smart-Touch watches in the first year.
The Smart-Touch, whose battery is made by Swatch's Renata unit, will be available from late autumn or early winter and cost around 1,000 francs.
While most Swiss watchmakers lack the technological skills and distribution network to make and sell smartwatches, tech giants clearly value their know-how in watch design.
Jeweler De Grisogono, for example, teamed up with South Korea's Samsung Electronics <005930.KS> last year, and presented a diamond-studded version of Samsung's Gear S2 smartwatch at Baselworld, aimed at attracting more women to the category.
"This is something very new in the smartwatch category. It's a real luxury watch," Fawaz Gruosi, founder of De Grisogono, said of the limited edition watch that will sell for 14,900 francs.
According to Futuresource, women account for 60 percent of all watch sales, but only 34 percent of smartwatches.
($1 = 0.9685 Swiss francs)
(Reporting by Silke Koltrowitz; Editing by Mark Potter)