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Kuo: Apple Watch shipments to decline in 2016 despite new models, lower prices

Well-connected analyst Ming-Chi Kuo believes Apple Watch sales will decline in 2016 despite the launch of a revamped Apple Watch Series 2 and price cuts for the refreshed first-gen model, now called Apple Watch Series 1.




In a note to investors obtained by AppleInsider, Kuo cuts 2016 Apple Watch shipping estimates 15-25 percent for Apple's latest smartwatch lineup, which includes both Apple Watch Series 1 and Series 2 devices. Projections for Apple Watch Series 1, which now features an enhanced S2 SiP processor, are the main driver for Kuo's downward revision.

Shipping estimates for the Series 2 were raised, but at less than 10 percent are unable to make up for the expected Series 1 slowdown.

The analyst is revising overall shipping estimates from 10 to 10.5 million units down to 8.5 to 9 million units for the entire Apple Watch line. By comparison, Apple shipped 10.4 million Apple Watch units during eight months of availability in 2015, Kuo says.

According to Kuo, Apple Watch faces four structural challenges: a lack of killer applications; inadequate battery life; heavy reliance on iPhone; and likelihood that multi-touch will not be the best UI solution for wearable devices. The last concern is peculiar considering Apple Watch has never supported multi-touch input, though Kuo might be referring to potential future iterations of the product.

"This suggests that sales of the new Apple Watch models are indeed driven by hardcore Apple (US) fans, first-generation replacement demand and niche demand, rather than by the mass market," Kuo writes, adding that collaborations with big retail brands, namely Nike and Hermes, are unlikely to increase demand.

Though Apple made internal improvements debuted with Series 2, including a "swim-proof" chassis and the addition of advanced components like a faster processor and GPS radio, the overall aesthetic remains unchanged from last year's model.

Apple is competing in a highly competitive wearables market, one dominated by less capable devices marketed by the likes of Fitbit. Whereas Apple Watch is a multifunction smartwatch, wearable fitness products do very few things, but they do them well.

Fitbit, in particular, is taking a page out of Apple's book with its wearable lineup. The fitness trackers are designed for, and marketed to, the mass market.

"We believe Fitbit's products can be likened to the iPod for their minimalist key functionality and outstanding design," Kuo says.

In this scenario, Apple Watch is an analog of the early smartphone before iPhone disrupted the scene. Kuo backs up his thesis with numbers from an in-house survey that shows Fitbit thriving in the second half of 2016 and through 2017, figures that suggest no negative impact from Apple Watch.