Worldwide shipments of Wi-Fi and Bluetooth connected timepieces fell by 32 per cent in the second quarter of 2016, according to market analysts International Data Corporation (IDC).
Vendors shipped 3.5 million units during this period – a substantial fall from the 5.1 million distributed a year ago.
Despite remaining the market leader with almost half of the share, the Apple Watch experienced a sharp drop in sales year on year, down 55 per cent according to IDC.
The other four biggest smartwatch producers – Samsung, Lenovo, LG Electronics and Garmin – all saw a rise in sales, but Apple's poor results dragged down the market as a whole.
IDC's report states that customers are holding off buying new Apple Watches in anticipation of hardware and software upgrades expected later this year. It also predicts that the market will pick up again next year.
Since its unveiling in 2014, the Apple Watch has had received very mixed responses. It was criticised by the tech giant's co-founder Steven Wozniak, as well as a collection of design industry figures.
Earlier this year, critic Alice Rawsthorn launched a scathing attack on the Apple Watch and the tech company's collaboration with fashion house Hermès.
Her comments came as Apple cut the price of the cheapest model from $349 (£245) to $299 (£210) – a move it usually reserved for older models of devices after the launch of new hardware.
Apple has yet to reveal a second generation of the watch hardware. It is rare for the company to leave more than a year between hardware upgrades.