According to the new report by Canalys, the total worldwide wearable band market grew 8 percent year on year in Q2 2017, led by Xiaomi with shipments of 3.5 million units, closely followed by Fitbit, which shipped 3.3 million units, a 34 percent year-on-year decline.
The report said, the top two vendors overtook Apple and the Cupertino based tech giant fell to third place with 2.7 million watch shipments.
Xiaomi and Fitbit, which predominantly sell fitness bands, benefited from stronger sell-through in the quarter, with Xiaomi expanding availability in APAC and EMEA.
"The hype surrounding smart watches has been short-lived and the market must now focus on compelling use cases to stimulate demand. Vendors in China, including Xiaotiancai and 360, have released Android-based smartwatches running on LTE networks, enabling parents to keep tabs on their children," said Canalys Research Analyst Mo Jia.
Jia added, "The arrival of the new Snapdragon Wear chipsets from Qualcomm has prompted vendors to improve their wearable band offerings."
However research firm expects premium LTE-enabled smart watches in China to grow rapidly as vendors build new features on top of the basic tracking and calling capabilities.
Canalys stated that vendors integrating cellular connectivity into their smart watches are expected to adjust their go-to-market strategies to complement the new products.
"Apple is poised to capture the cellular smartwatch market by using its strong relationships with operators, which will become critical points of sale for cellular smartwatches and related services," said Canalys Analyst Jason Low.
"Apple is the industry leader in allowing consumers to experience the different Apple Watch styles and functionalities in-store. It is crucial for Apple Stores and Apple's offline retail partners to adapt quickly to effectively showcase new cellular-enabled use cases as soon as products are available," Low added.
Fitbit is currently facing greater pressure as the release of its next smartwatch is approaching.
"Competitors are set to gain an edge with the upcoming release of cellular-enabled smart watches. Fitbit can still mount a challenge by producing an appealing smartwatch, avoiding the typical pitfalls of bulky design and short battery life, while integrating a system that gives proactive coaching, which may deliver noticeable benefits to users. Fitbit must outdo the rest to win the market," Low further added.