A leading technology analyst has estimated that the Apple Watch sales in the first 2 weeks will reach 3 million units, comprising 1.8 million Sport models, 1.2 million of the steel variety, and 40,000 Edtion models – which should generate more than $2 billion in revenue.
Apple Watch on track for 3 million sales in first 2 weeks
Think Big analytics principal Carl Howe has estimated the gross margins at more than 60%, which makes it the company’s most profitable product ever.
The electronics used in the more expensive models are the same as used in the less expensive Sport models, and they don’t cost very much to produce. And while gold cases and designer bands do increase the costs, it’s small compared to the premium that people pay for those more expensive models. And unlike most consumer electronics, there’s not much pressure for the prices to fall – manufacturing costs may, and that results in a very profitable product lineup.
However, Howe does admit that his analysis, like any other company, are “really just educated guesses,” but he is a credible source and his thinking makes a lot of sense.
He bases his estimates on various sources: Slice sales data, polling on model orders and Quanta production estimates (Quanta makes the device for Apple). Using a combination of all three, Howe says that initial sales will be more constrained by supply, rather than demand.
I believe that the 3 million Watches already in flight to consumers are simply Apple’s seeding of the market prior to adjusting the final assembly mix to the actual order flow. I also believe that Apple and Quanta have probably gained enough experience at this point to begin ramping up production to more than 2 million units a month during May and June, resulting in another 4 million or so units to be shipped prior to the end of the second calendar quarter. I don’t believe that this increased production will satisfy demand however, and I expect Apple Watches to be on back order through much of the summer.
Different analysts have come up with different estimates, but it’s pretty hard to see how he could be wide of the mark on the margins. As he says, Apple has always produced high margin products, but the premium prices for the gold and steel Apple Watch models, together with the bands, takes things to a whole new level.
While Apple uses premium materials for the Apple Watch, I believe that the costs of those materials are small compared with the price of even the least expensive Apple Sport Watch. By designing cases and bands that command prices aligned with jewelry instead of electronics, Apple has positioned its smartwatch products to earn exceptionally high margins compared to its smartphone and computer lines of business.
That means that the $10,000 and up Edition model will only sell a tiny fraction of the others, but its revenue will be almost half a billion dollars on its own.
He also suggests that the next version of Apple Watch will be a minor update – basically adding another couple of sensors.
Most people who have ordered the Apple Watch are still waiting to take delivery (as am I), but third party companies are already working on replacement bands and battery packs. Apple however may be working no new band colours and designs, as Apple’s chief design guru Sir Jony Ive was in Milan last week showing off a range of new Sport band colours – it’s not yet known whether these are special editions or will go on general sale.
SOURCE: Carl Howe