Avi Greengart, analyst on consumer devices at the research firm Current Analysis said 2013 may be the year for the smartwatch because "the components have gotten small enough and cheap enough" and a large number of consumers now have smartphones that can connect to a wearable device.
According to the Australian, the idea of the connected watch has been around for at least a decade: Microsoft had one in 2003.
Some devices are already on the market including from Sony and the crowdfunded maker Pebble.
According to the report, ABI Research predicts that smartwatches and other wearable computing devices will "explode in popularity over the next year".
It also predicted that it would grow to 485 million annual device shipments by 2018.
Citi analyst Oliver Chen said the smartwatch segment, which now includes devices from Fossil and Movado, could easily evolve into a 6 billion dollars annual business with "higher than average" profit margins, the report said.