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Initial Apple Watch production likely build-to-order as Apple gauges demand for different models, analyst says

Apple is likely taking a conservative approach in building Apple Watch units at launch, in what is essentially a build-to-order situation for the first units, one analyst believes.




Writing at his personal site, longtime Apple watcher Carl Howe proclaimed that he expects the Apple Watch became an overnight multi-billion-dollar business when preorders began earlier this month. As for why units sold out almost immediately, Howe believes Apple is attempting to keep inventory costs low and simultaneously meet consumer demands by manufacturing in response to preorders.

Apple is likely keeping its risks at a minimum, he said, by eliminating unknowns from the manufacturing process. And one of the biggest unknowns is exactly what models will prove popular with consumers, given that Apple is entering into an entirely new product category.

"Building huge inventories of all the models of watches and waiting for consumers to order them risks warehousing large quantities of unsold merchandise. That wastes capital," Howe said. "Instead, I believe Apple will build a smaller number of watches of each type for store and demo use and then do build-to-order final assembly of the actual cases and bands ordered."

When preorders began on April 10, Howe believes that Apple was undertaking an entirely new approach with the launch of the Apple Watch. In his view, Apple is using presale data to determine its final assembly and manufacturing.




His forecast calls for Apple to ship about 3.1 million Apple Watches in the launch period between April 24 and May 8, when most initial orders are projected to arrive. He expects that 1.8 million of those will be the aluminum Sport, 1.3 million will be the stainless steel Apple Watch, and 40,000 will be the pricey 18-karat gold Edition.

He believes initial sales revenue will reach just over $2 billion, with the most revenue —$900 million —coming from the mid-range stainless steel model. And while Apple won't sell a huge number of Edition watches, he believes it will still represent a half-billion dollars in business for the company.

Howe also believes that the Apple Watch will prove to be Apple's most profitable product line ever, with gross margins north of 60 percent.

The Apple Watch will officially arrive this Friday, though consumers can get a preview of the hardware with in-store try-ons available at Apple's retail locations through appointment or walk-in. The wrist-worn accessory starts at $349 for the 38-millimeter Sport model, with prices going as high as $17,000 for the most costly Edition variant.