The Wall Street Journal also said Friday that Apple Inc. is planning multiple screen sizes for the device, which some people have dubbed the iWatch.
Samsung, Sony, Qualcomm and others have already released smartwatches, but the gadgets have mostly functioned as companions to smartphones, offering email notifications, clock functions and the like. Samsung's Gear 2 line, released this year, added fitness-related apps and has a heart rate sensor.
There's been longstanding speculation that Apple has been working on a smartwatch. The main question has been when it would come out.
Apple intensified speculation this month when it said the upcoming version of its mobile operating system, iOS 8, will include tools for managing health data. The software is expected in September, along with new iPhones.
Apple has been under pressure to release new products, as investors question whether the company that popularized the smartphone and the tablet computer is still able to innovate following the death of co-founder Steve Jobs. CEO Tim Cook has hinted at new products coming this year, but the company hasn't provided details.
Citing unnamed people familiar with the matter, the Journal said production of the smartwatch is expected to begin in two or three months at Quanta Computer Inc., a Taiwanese company that has worked on Apple's Mac computers. Sales of the device could begin as early as October.
Apple declined comment in line with its policy of not discussing future products.