Is the iWatch Apple’s Next Big Thing?

iwatchWill Apple (NASDAQ:AAPL) finally unveil its long-rumored iWatch device next year? A new report from research firm Canalys predicts that smartwatch shipments will top five million in 2014. Canalys estimates that over 500,000 smartwatches will ship this year, compared with approximately 330,000 devices shipped last year.

Currently, the smartwatch market is being led by Sony (NYSE:SNE), with its SmartWatch 2 device, and the Kickstarter-funded company Pebble. However, the market is expected to see rapid growth next year as new devices from Apple, Google (NASDAQ:GOOG), Microsoft (NASDAQ:MSFT), and Samsung (SSNLF.PK) enter the market.

Rumors of Apple’s so-called “iWatch” development have been around since last December, when a Chinese supply chain source suggested that the Cupertino-based company was exploring the development of a smartwatch. More recently, insider sources via the Financial Times reported Apple has “aggressively” started hiring new employees to help it with “hard engineering problems” related to the device’s development.

Apple has also reportedly submitted multiple iWatch trademark filings in various countries. Well-connected KGI Securities analyst Ming-Chi Kuo believes Apple will launch a smartwatch device sometime in the second half of 2014.

Canalys predicts that future smartwatches will be complementary devices to smartphones, and will feature “more sophisticated software and more elegant hardware.” The report also notes several technological hurdles that must be overcome for the successful development of these devices, including “strict power constraints” and the creation of a “competent developer platform specifically for the form factor.”

Although Apple has yet to officially announce the development of a smartwatch device, the company may have a natural market advantage considering its unique track record of creating and dominating new tech product categories. Canalys VP and Principal Analyst Chris Jones acknowledges Apple’s history of success when he states that, “Smartwatches will be the most important new product category in consumer electronics since the iPad defined the market for tablets.”

Here’s how shares of Apple have traded this week:

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