Apple Watch sales sluggish but will catch on, says analyst
Is the Apple Watch a flop so far? Hmm, that may or may not be the case. But analyst Gene Munster says to wait until 2017 when Apple's new wearable will have a "breakout year."
Apple Watch sales might be low at this point, but at least one analyst expects gangbuster demand in another two years.
Apple's new wearable devices have been "disappointing for some investors," Piper Jaffray analyst Gene Munster said in an investors note released late Sunday. But the numbers may actually be in line with the analyst's expectations for a "slow start." Munster has called for sales of 3 million units for the last quarter, which is nearly rock-bottom compared to the forecasts of most other analysts.
But Munster said he believes that demand for the Apple Watch will take time and is confident that 2017 will be the device's "breakout year." As such, he's currently forecasting unit sales shooting from 14 million next year to 40 million in 2017 at which point the watch will account for around 9 percent of Apple's overall revenues. Munster added that he's been surprised at the concern expressed by investors about the watch's long-term prospects.
The company's first entry into the wearable device market, the Apple Watch is available in three varieties: the entry-level Sport version starting at $349, the Apple Watch starting at $549 and the Apple Watch Edition starting at $10,000. As such, the watch is competing against a range of different products -- other smartwatches, fitness and activity bands and even high-priced luxury watches. So even at its lowest price point, the Apple Watch is more expensive than many other rival devices. The watch also requires the iPhone to take advantage of most of its features, so Android phone owners are out of luck.
The Apple Watch was also rolled out with much fanfare, but the initial buying process was cumbersome. Consumers had to make a reservation to be able to check out the watch at an Apple Store and could only order online, a process that may have limited sales. Since then, Apple has opened up the process so that customers can now buy the watch in-store. But whether or not the Apple Watch has been a sales dud so far is debatable and hard to know with any certainty.
Apple refuses to release any sales numbers. The only data available is from research firm Slice Intelligence, which estimated in mid-June that Apple had sold around 2.8 million watches since the product went on sale in April. But data released last week from Slice estimated that orders for the watch have plummeted around 90 percent since its April debut, according to Business Insider. However, Slice's data is based on a large number of email receipts in the US and don't catch sales at retail stores.
A collection of 27 analysts were asked by Fortune to predict Apple Watch sales for last quarter. The average came in at 4.1 million units, with the lowest at 2.85 million and the highest at 5.7 million. The analysts cited by Business Insider also had mixed opinions of the watch and its sales at this point. But whatever the numbers, it's way too early to write off the watch.
First, smartwatches in general have yet to truly take off. People are still trying to figure out why they need a smartwatch in addition to their smartphone. And until that happens, the overall demand for these devices will be weak. Second, the Apple Watch is the company's initial edition of its first wearable and as such is ripe for improvement. Over time, Apple will likely introduce new and enhanced versions of the watch.
Munster also put his faith in the future of the watch based on the upcoming second version of the device's operating system. Due out later this year, version 2 of the Apple Watch OS will introduce new capabilities, bring native apps to the device and reduce its reliance on the iPhone. The more native apps the watch can run on its own, the greater the potential appeal, even among non-iPhone users.
"Our belief in the longer-term value in the Watch is driven by the eventual rollout of native apps starting later this year in V2 of the watch software that will have greater and unique functionality compared to current apps that only mirror the iPhone," Munster said.