Neil Hughes
The Apple Watch is expected to be a significant part of Apple's growth story in calendar year 2015, according to research firm Evercore, which advised investors to buy in to AAPL stock ahead of the wearable device's imminent launch.
Evercore analyst Rob Cihra said in a note to investors on Monday, a copy of which was provided to AppleInsider, that he believes the Apple Watch will launch around March, and will achieve an average selling price of $500.
At that price, and with some nine months to sell in calendar 2015, he expects the Apple Watch will be a "meaningful" addition to the company's bottom line. Specifically, he predicts that the Apple Watch will add 4 percent to its calendar 2015 revenue, and will account for 36 percent of its growth over 2014.
Unsurprisingly, Cihra predicts that the lion's share of Apple's 2015 growth will still come from the iPhone, representing more than 60 percent. But he also believes the Apple Watch will be a hit right out of the gate, helping to boost Apple's price to earnings ratio as the company enters a new product category.
His forecast calls for total Apple Watch shipments of 18.5 million units this year, and 22.9 million more in calendar 2016. That would equate to a 5 percent attach rate for Apple's iPhone installed base — Â an estimate that Cihra himself called conservative.
In contrast, the iPad saw an astonishing 20 percent attach rate at launch. But Cihra noted that the iPad was a standalone product with greater market potential, while the Apple Watch will at first only be usable by those who already own an iPhone.
For the larger wearable devices market, Cihra said the biggest hurdles for electronics makers are creating small, usable devices that are fashionable. But those are the two areas where the analyst believes the Apple Watch is the strongest product.
"(Apple has a) proven ability to develop intuitive software UIs and design tech products that are fashionable as they are functional," he wrote. "We think focusing on smartwatch specs misses this 'fashion intangible,' likely the most important factor in ultimate adoption, yet we see Apple as the one company that could make smartwatches cool."
Evercore has reiterated its "buy" rating for AAPL stock with a price target of $135.
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101 Comments
This strongly assumes that current Apple device owners are going to want a $500 smartwatch. Or any smartwatch to be honest. Also how often are watches replaced? Especially $500 watches? The thing about phones is that people get new phones every couple of years. But people expect good watches to last a long long time. So repeat sale prospects aren't great, in my opinion. At $300 I can see it working out. $500 is a big step up, for a watch / iDevice companion.
I'm not sure you can predict the future buying habits on the past. Remember film cameras, you would purchase a pro-body, and expect it to last many years somewhat like a quality watch. Now they are updated every few years, and cost a lot more. I just replaced my 2 - two year old bodies ( $3300 ea.) with 2 new bodies, also $3300 each. Something I would never have done in the film days.
[quote name="Hattig" url="/t/184159/apple-watch-predicted-to-account-for-36-of-companys-revenue-growth-in-2015#post_2657543"]This strongly assumes that current Apple device owners are going to want a $500 smartwatch. Or any smartwatch to be honest. Also how often are watches replaced? Especially $500 watches? The thing about phones is that people get new phones every couple of years. But people expect good watches to last a long long time. So repeat sale prospects aren't great, in my opinion. At $300 I can see it working out. $500 is a big step up, for a watch / iDevice companion.[/quote] People, in theory at least, don't need to get a new iPhone as often as they do. The thing about Apple's user base, or a large percentage of it, is [S]they[/S] WE just [I]lust after[/I] a new iPhone ... or iPad or whatever Apple make. That's where trying to use logic on all of this falls down. So I suspect using the 'what people need' argument isn't a good metric for potential sales of the ?Watch. I also predict that even those that buy one will get a new one every couple of years as new features come out, even though they sure as heck won't need one. I have used the 'we can pass it on' excuse so many times when buying the latest iPhone yet I still have every model ever made in a cupboard along with iPads and iPods, Macs and ACDs. :\ As to the step up from $300 to $500 being an impediment, sales of mid and high end iDevices surely show that to not be a barrier. I have no idea how well it will sell, I can only hope it does very well as an AAPL share holder.
This strongly assumes that current Apple device owners are going to want a $500 smartwatch. Or any smartwatch to be honest.
I concur with digitalclips on this. History suggests this can work for Apple. Pundits questioned whether people would want a $599 smartphone when the iPhone was introduced. Or any smartphone. The smartphone business wasn't nearly as big when Apple got into it. Some people even questioned whether the iPhone even qualified as a smartphone. Also consider that before the smartphone really took off with the iPhone, there wasn't so much impetus for upgrading a phone, but rapidly changing technology has changed that.
The watch market is apparently quite large and it will become larger when people who haven't worn a watch in years (or ever) get into the market. I haven't worn a watch in 20 years and back then never had one that cost more than $30, and I'm looking forward to this. I've read similar accounts from others. I am not getting the Apple watch to know the time, but for all the other useful stuff it will do. The technology will improve rapidly, and we'll be buying the 2nd or 3rd gen models too. Maybe not replaced as often phones are now, but more often than many people currently buy watches.
I think it is a mistake to initially limit the ?Watch to the iPhone. Obviously the iPad and iPod Touch both support the same iOS as the phone, so why not maximize the debatable early adoption rate by making it available to everyone with an Apple device, regardless if it's an iPhone or not? The iPad in particular, as most people who own a tablet, regardless if they use a Windows PC, or Android-based smartphone, will most likely own an iPad. This is especially true for older customers, those who grew up wearing watches and, the most likely candidates for the ?Watch.