I can't speak for the processor manufacturing. But I think it goes beyond shrinking down the processor, implementing a larger battery to incorporate features for GPS and perhaps the future generation of LTE.
And I think most seem to forget, traditionally larger mechanical watches are top-heavy and thicker based on style and substantiality. Other seem to subject the Apple Watch into a category of its own believing it should be thinner, when that's not the answer to everything just because it's a smart watch or piece technology.
Exactly. I was worried about this, but the Apple Watch feels chunky and substantial, just like my very nice mechanical watches. Now that I have mine, I like the form, including the thickness.