Apple (AAPL) has a history of reinventing products in a manner that competitors have not been able to do. iWatch is likely to be no different. “Apple ‘iWatch’ hype is building toward iPhone-like levels,” says VentureBeat. CNBC is quoting Reuters that 50 million iWatches will be sold in the first year. TheStreet wants the reader to consider the possibility of Apple selling 80 million iWatches within the first year. Forbes quoted an analyst estimating 9 – 25 million iWatches within the first year.
These models are based on historical data from iPhone and iPad. However, the enthusiasm for iWatch seems to be overdone, especially because comparisons related to the iPhone and iPad are faulty as iWatch is quite different as explained below.
In the first year of introduction, 5.4 million iPhones were sold, then it took off. In the Christmas season of 2013, about 50 million iPhones were sold. The other comparison is to iPad, which sold 19.5 million units in the first year. The argument is that iPad sold three times more units in the first year compared to the first year sales of iPhone because by the time iPad was introduced Apple was more established. By this logic iWatch will sell lots more united in the first year than iPad.
iWatch may follow a different trajectory compared to iPad and iPhone for the following reasons.
Pent-up Demand
“17% of U.S. teens would pay $350 for an Apple iWatch – survey,” says Fortune. There are about 300 million iPhone users. Various surveys put older users waiting to buy iWatch at 12-14% of iPhone users.
Unlike iPhone and iPad, there is a huge pent-up demand for iWatch. Apple fans have been patiently waiting for introduction of a new product by Apple. They may buy iWatch in droves in the beginning. After the initial pent-up demand is satisfied, there may be a lull or even a fall in iWatch sales. This will be quite different from the sales trends in iPhone and iPad.
Lower ASP
The indications have been that iWatch will be priced in the range of $199-$299. This is a significantly lower average selling price (ASP) than iPhone or iPad at the time of their introduction. Gross margins on iWatch are expected to be similar to iPad. For the investor, it means that net earnings attributed to per iWatch unit sold will be significantly less than those seen in iPhones and iPads. Over the long-term, Apple stock will respond to earnings per share and not to the number of units of a particular product sold.
Limited Market Size
iWatch buyers are likely to be existing iPhone users as all indications are that iWatch will work as an adjunct to iPhone. This builds in a limit on the market size. Such a limit did not exist for iPhone and iPad when they were introduced.
Read the rest of the column at Forbes.
