Apple Inc. (NASDAQ:AAPL) had high hopes its HomePod smart speaker would be able to carve a big slice out of the smart speaker market with its premium approach. So did Apple investors. However, there has been no bump for AAPL stock attributable to the release, amid reports of slow sales. Now a report in Bloomberg says HomePod sales have fallen to the point the speakers are “piling up” in Apple Stores.
The question is, will Apple wait it out in the hope its smart speaker builds a fan base, or start making adjustments in its strategy?
Bloomberg Reports Lackluster HomePod Sales
A lot of people were waiting for the HomePod, which had been delayed from its originally planned December 2017 release. In a positive sign, pre-orders sold out, taking one-third of the U.S. market for smart speakers. And that was before buyers had the opportunity to actually hear one in a store to decide if Apple’s engineering had delivered the premium audio experience driving the lofty $349 price tag.
However, it wasn’t long before reality intruded. By early March, HomePod sales were being called underwhelming and it was becoming clear that the smart speaker wasn’t going to be the next catalyst for AAPL stock, as some had hoped.
Apple doesn’t spike out HomePod sales numbers, but Bloomberg released a report this week — based on data from Slice Intelligence — that doesn’t paint a rosy picture. It says that by launch (after encouraging pre-orders), HomePod sales had dropped to a 10% share in an established market that was dominated by Amazon.com, Inc.’s (NASDAQ:AMZN) Echo.
After three weeks, that share had dipped to just 4%. Bloomberg also notes Apple Store workers have said inventory is piling up, with some locations seeing HomePod sales of fewer than 10 per day.
China Times Says Orders Cut
Supporting the Bloomberg report, yesterday MacRumors posted about a story that appeared in the China Times. Based on information from Apple’s supply chain, including primary smart speaker manufacturer Inventec, the story claims that poor HomePod sales have resulted in Apple cutting its sales forcecast for Q2 to 200,000 units per month, down from the original 500,000 units per month.
What Will Apple Do?
The HomePod could survive at a 4% marketshare as a niche player in the smart speaker market. As the Bloomberg data shows, that’s still double the numbers the popular Sonos One is pulling down. However, Apple didn’t launch the HomePod to be a bit player, in a market where Amazon and Alphabet Inc’s (NASDAQ:GOOGL) Google are allowed to dominate.
The first possible boost to the HomePod’s fortunes will be the firmware update that enables stereo pairs and multi-room audio. These are key features that Apple was forced to leave out in order to avoid delaying the smart speaker’s release even further. When it arrives later this year, the new capabilities will make it easier for Apple Store employees to demo the audio advantages of the HomePod.
That still leaves challenges: the big price premium over the Amazon Echo, Siri’s limited functionality compared to Alexa and Android Assistant, and the lack of support for Spotify Technology SA’s (NYSE:SPOT) streaming music service.
Siri is going to take continued work and, despite the recent poaching of Google’s AI chief, that will take time. With Apple Music, don’t expect native Spotify support to arrive any time soon. That leaves price as something Apple can tinker with. Don’t expect the HomePod itself to get a price cut — AAPL is already taking lower margins on the smart speaker than it’s accustomed to.
However, with the pressure to boost HomePod sales on, Apple could release a less expensive version in time for the holiday shopping season. Still better sounding than an Amazon Echo, but not quite $349 good… That would get people into Apple Stores instead of scaring them away, and still give employees an opportunity to upsell them to the more expensive HomePod.
Having a lower-priced option would boost overall HomePod sales and market share. And, in a potential boost for AAPL stock, it would make it far more likely Apple could post some big sales numbers over the holidays — a time when all the other smart speaker makers smashed records last year.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.
