Rumors out of Taiwan claim Apple is currently testing 1.5-inch OLED displays from RITEK for its smartwatch device. That display will apparently be linked to RitFast sensors to make it touch-sensitive.
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If the iWatch is just an accessory to the iPhone or iPad, it doesn't make sense for Apple to release the product. Apple's primary product line is all about stand-alone devices that also happen to interact really well with other Apple gear.