Fitbit to lay off 6% of its work force, cut expenses after soft holiday sales

Company and analysts still see future market for smartwatches

fitbit charge 2
Fitbit

Fitbit on Monday announced cost reductions and layoffs of 6% of its global workforce after experiencing softer-than-expected holiday demand for fitness trackers.

The company and analysts said despite the negative news, there is still a future market for wearable devices as well as for smartwatches made by Apple, Samsung and, soon, Fitbit itself.

In its preliminary financial results for the fourth quarter of 2016, Fitbit said it sold 6.5 million devices, with revenues expected to reach up to $580 million, down from previous guidance of $750 million.

"We are confident this performance is not reflective of the value of our brand, market-leading platform and the company's long-term potential," said co-founder and CEO James Park, in a statement.

"We believe the evolving wearables market continues to present growth opportunities for us that we will capitalize on by investing in our core product offerings, while expanding in the smartwatch category to diversify revenue and capture share of the over-$10 billion global smartwatch market," he added.

Park said consumers want a "stylish, well-designed" smartwatch that has "general purpose functionality with a focus on health and fitness." Fitbit recently acquired Pebble, Vector Watch and Coin (with its mobile payments technology) to "position the company for long-term success."

Park and co-founder and Chief Technology Officer Eric Friedman said they will reduce their 2017 salaries to $1. The layoffs will affect about 110 workers, while expenses will be reduced by about $200 million to about $850 million in 2017. The reorganization will affect sales and marketing groups and create "optimization" of the company's research and development efforts.

Jitesh Ubrani, an analyst at IDC, said he didn't think Fitbit's fourth-quarter results signaled a long-term decline for wearables and smartwatches.

"I don't think the entire category is in trouble just yet," he said in an email. "Fitbit is indicative of the larger trend that growth will be slower. This is more of a pause than a continued decline."

Fitness devices in general have been a "commodity, and a lot of initial excitement has subsided," Ubrani said. Apple Watches and Android Wear devices have been successful in finding specific niches for sports and fashion, "but none have had mass appeal."

"Vendors have to find a way to make these wearables 'must have' devices, rather than 'nice to have,'" he added. Fitbit's acquisitions "bode well for the category."

IDC has not yet reported overall smartwatch results for the fourth quarter of 2016, but said the smartwatch market declined by 52% in the third quarter, with 2.7 million devices shipped, down from 5.6 million shipped in the third quarter of 2015.

In the third quarter, Apple had 41% of the market, but shipped only 1.1 million units, down 72% from the previous year, IDC said. Garmin came in second, with 600,000 smartwatches shipped and 20% of the market. Samsung was third with 400,000 shipped and 14% of the market.

Officials at Valencell, which makes sensors and other technology for wearables, said that while sales slowed for Fitbit, sales increased for some of its competitors.

"'Wearables' is not one market or one use case," said Steven LeBeouf, president of Valencell. "Several segments of the market are seeing tremendous growth, including 'hearables,' clothing and apparel and industry safety applications."

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