Apple Watch: What Can We Really Expect?

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After months of speculation around when Apple Inc. (NASDAQ:AAPL) would finally release the Apple Watch, we now appear to have a date: March 9. That’s Apple’s “Spring Forward” media event and it seems like a lock that the Apple Watch will be the focus — after all, the event name references time, plus AAPL stated previously that its smartwatch would have an early 2015 release. What happens once the Apple Watch hits store shelves? A repeat of the record iPhone 6 launch weekend? Or, could Apple suffer the fate of rival Samsung (OTCMKTS:SSNLF), whose first smartwatch — the Galaxy Gear — reportedly sold under 50,000 units in its first two months?

what to expect from apple watch aapl
Source: Apple

My guess is neither scenario will happen. Instead, the Apple Watch will do brisk sales on its launch weekend, then chug along as a modest product line (by AAPL standards). Think more Apple TV than iPhone — not a disaster, but not a line of business that’s going to push AAPL revenue to the next level.

The Apple Watch has gotten a lot of press and there are lofty expectations from many people that this is the device that’s going to dominate the smartwatch industry on its release. After all, observing an under-achieving product then releasing a version that blows away the competition is what Apple does best. That was the model it followed with the iPod, iPhone and iPad.

However, when AAPL entered those markets, it was relatively early. There were established players — Sony Corp (ADR) (NYSE:SNE) struggling with portable digital music players, BlackBerry Ltd (NASDAQ:BBRY) with business-focused smartphones and Microsoft Corporation (NASDAQ:MSFT) trying to spark interest in tablet PCs — but there weren’t many competitors.

In contrast, with the Apple Watch, AAPL will be one of the last consumer electronics giants to wade into the smartwatch (and wearables) market. Samsung alone has released three or four generations of Gear smartwatches and Google has an Android-based smartwatch OS already widely in use. In addition, the smartwatch market is packed with dozens of smaller competitors and there is significant overlap with the fitness wearables market — which is also saturated with competition including established leaders like Fitbit.

Then there’s the size of the smartwatch market.

Smartwatches powered by Google Inc‘s (NASDAQ:GOOG, NASDAQ:GOOGL) Android Wear operating system — including the highly anticipated Moto 360 (read our review here)– had total sales of 750,000 in 2014.

The Pebble, the Kickstarter darling smartwatch that arguably pushed this segment into gear (and the company that consumer electronics giants have in their sights), hit its cumulative one-millionth sale on the last day of 2014.

In other words, even if the Apple Watch were to dominate the smartwatch market, it’s not a big market to control. At least not yet.

Then there’s platform support.

To get the most out of a smartwatch, you need a smartphone to do the heavy lifting. The Apple Watch is no different in that regard — it can run some apps independently (as can most smartwatches), but connects to an iPhone for communications and notifications.

You can’t use an Android smartphone with an Apple Watch, and 84% of the smartphones out there run Android. That fact alone limits the Apple Watch to a smaller slice of the total potential smartwatch market. Add in the fact that many competitors — primarily the independents like Pebble — are compatible with both Android and iOS, and that makes the math even less encouraging for AAPL.

Finally, let’s throw price into the equation.

When AAPL released the first iPad at $499, it undercut the price of laptop PCs and as competitors ramped up their response to the iPad, they quickly found they couldn’t beat Apple on price.

The entry level Apple Watch is priced at $349.

The new, color Pebble Time smartwatch that Apple Watch will compete against will sell for $199. The Moto 360 starts at $249. Fitbit’s new Surge crossover smartwatch is $249. Samsung’s curved screen Gear S with its own 3G radio (no smartphone required to make calls) sets you back $329.

The Apple Watch not only has a very small slice of what is currently a small market that it could win, it has to take those sales from established competitors who are charging much less for their product.

All right, I’ve done all the Apple Watch bashing I can do. I don’t think it’s going to be a flop, either.

The Brighter Side of the Apple Watch

The tablet market Apple went into had been floundering for years and no-one thought much of it. When Apple announced the iPad, there were many predictions the tablet would fail, despite the success of the iPod and iPhone. We know how that turned out.

AAPL has a habit of proving the naysayer’s wrong. There’s also a lot of pent up demand for this product and hope that Apple has somehow “figured out” the wearables thing. There will be line-ups for the Apple Watch at Apple stores come launch day, but unlike an iPhone launch, once that initial surge is over, demand will likely settle down to a tamer pace.

Expect the Apple Watch to develop into a profitable product line that helps to support other Apple gear, brings people into Apple stores, generates modest sales and contributes revenue that helps to take some of the pressure off the iPhone. You know, like the Apple TV — only sexier.

Given that AAPL is rumored to have ordered 5-6 million Apple Watches for the first quarter (compared to the 70-80 million iPhone 6 units it ordered prior to its last smartphone launch), it seems that Apple is aware of the questions surrounding the smartwatch market. Call its approach to the Apple Watch launch cautiously optimistic. I think that’s the right way to do it.

As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.

Brad Moon has been writing for InvestorPlace.com since 2012. He also writes about stocks for Kiplinger and has been a senior contributor focusing on consumer technology for Forbes since 2015.


Article printed from InvestorPlace Media, https://investorplace.com/2015/02/apple-watch-expectations-aapl/.

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