Apple Watch predicted to account for 36% of company's revenue growth in 2015
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 --?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.
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 --?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.
Comments
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.
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
theyWE just lust after 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.
Even with all the naysayer, one thing can be guaranteed: there will be people lining up and disappointed that stock is not available for weeks/months. And similarly when the next new version of the Watch comes out.
I do like the wording of the article, percentage of revenue "growth" which I take to mean a new revenue stream that doesn't already exists. It kind of makes sense the Watch would have a role in that, because what other "new" revenue streams are there at Apple?
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.
All I've got to say is that It's too early to expand that kind of support.
More engineering time, costs, complexities that are saved for when you have time down the road, not while you're squeezing your resources to make a product deadline. I think we'll will see expansion into other devices as soon as we start to see some WatchOS maturity, dependency on iPhone relinquished and with that effect, not needing to have an iDevice along side the Watch to support the majority of its functionality.
You also can't forget that the iPhone market is enormous. They're hitting wide market base in which many of those iPad owners are also iPhone owners, so the overlap would be negligible out of the gate (I don't think Granny will be buying an Apple watch for another few years, at minimum).
Honestly, even though they say revenue "growth" that still seems so high to me. Im really interested to see how many they sell this year. I just cant see it taking off as much as some people have been speculating.
GPS chip comes to mind. The iPod doesn't have it, and only the cellular iPad models have it.
Really? Apple co-founder Wayne doesn't think so:
http://9to5mac.com/community/apple-co-founder-ron-wayne-says-he-uses-a-burner-phone/
I fully agree. They'll be lucky to sell 20M of them. With what, an ASP of $500 or something? I think it won't make much difference, and Apple will list it under mobile device revenue, without sharing profit numbers.
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.
All I've got to say is that It's too early to expand that kind of support.
More engineering time, costs, complexities that are saved for when you have time down the road, not while you're squeezing your resources to make a product deadline. I think we'll will see expansion into other devices as soon as we start to see some WatchOS maturity, dependency on iPhone relinquished and with that effect, not needing to have an iDevice along side the Watch to support the majority of its functionality.
You also can't forget that the iPhone market is enormous. They're hitting wide market base in which many of those iPad owners are also iPhone owners, so the overlap would be negligible out of the gate (I don't think Granny will be buying an Apple watch for another few years, at minimum).
Granny's children will be buying the watch 'for her', so that they can monitor her heath issues.
I disagree. Apple should work with what it knows best and that's ios. Simply because the limited number of iPhone models is a good start to test and refine.
That said, these predictions are useless because we know little about the watch nor do we have an idea when it will be released.
I just wish people would stop focusing on this thing as a "time-piece". That's the stupidest short-sight that I am continually reading everywhere.
Comparing an Apple Watch with a regular watch is like comparing an iPhone with a regular phone ...
An Apple Watch can do so much more -- quickly and conveniently.
I suspect that we'll se a lot of tie-in promotions by carriers, banks/credit card companies and phone retailers.
I just wish people would stop focusing on this thing as a "time-piece". That's the stupidest short-sight that I am continually reading everywhere.
Why?
It might be a computing device but it is a Watch first.
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 the assumption of replacement is overblown... no where in the article was 'replacement' cycle mentioned. I see growth by functional acceptance... just like smartphones grew by being a functional improvement over 'feature phones' that grew out of 'cell phones' that grew out of 'land lines.' WilliamH hits it on the head. Like the iPhone and iPad basically redefined the 'computer' market into demographics who wouldn't carry a laptop, but had a cell phone, AppleWatch will get people who spend a huge amount of time using their phone as a watch (I'm one), or small message communication, and not a compute platform.
There are a lot of 'feature watches' out there (fitbit/Fuel being one niche), that grew out of 'digital watches' (that had stop watches, timers, calculators, simple calendars, alarms etc), that grew out of 'chronographs' and 'aviator watches' 'diver watches' etc.
The key will be low end price in imo. Apple has to get the price of the watch down to under $199. That will compete with highly functional feature watches, and at the same time, integrate into the apple ecosystem. Much like the iPhone dropped dramatically in price it's first year, I see the entry price on the phone dropping as well. $349 can easily be year one price, but it has to drop for adoption to ramp. and Adoption is key for app adoption, and app adoption is key for user lockin, and then the revenue circle spirals wildly upward.
And I think the next key is 'inline upgradeability,' esp in batteries, but just as much in chipset. If I buy a $2000 fashion watch, I expect it to last at least 10 years. This can be done by in shop upgrades/or ship/replace modes, but it will have to be done. Spending $100 every other year or so is not unusual for cleaning a Rolex, and wandering in for a chip/battery replacement would be the same (chip performance and OS are about 1/2 of the power performance envelope, so I see getting a next gen chipset, OS, and battery swap out as critical). This comes with the tradeoff of designing packaging to support upgradeability, or having the machines distributed to Apple Stores to execute such an operation 'while you wait'
Why?
It might be a computing device but it is a Watch first.
Agreed. It has to do what your average Casio did. the iPhone is still first and foremost a phone, yet the most popular computer as well.
As much as I want Apple to sell over 10 million AppleWatches in 2015 I honestly can't see it happening. I mainly want an AppleWatch for the biometric sensors and the data they can give and that's about it. I wear watches and I don't see anything wrong with AppleWatch being dependent on iPhone ownership. I don't like the short battery life of any high-end smartwatch. I'd want at least three days use before charging although I realize this isn't possible with present battery technology. I don't need a smartwatch beeping out notifications or reminders. I'm sure I will be buying an AppleWatch because as an Apple shareholder it's easily affordable and I'd like to wear one.
However, I can't picture the average consumer, even those who might want an AppleWatch plunking down $400 for a device that can't possibly be ready for prime-time based on the limitations of current technology. Despite being dependent upon an iPhone, it still needs to be charged daily. That's my main gripe with any smartwatch with a color display. I'm too used to my Casio G-Shock Solar watches that never require any charging or batteries for years. AppleWatch would end up as a second watch on my wrist and mainly being used on weekends. I'm not making predictions about sales. I know I could be way off the mark in terms of how Apple markets the AppleWatch. I can only hope they have something up their sleeves to sell AppleWatches that go beyond my short-sighted thinking.
Why?
It might be a computing device but it is a Watch first.
Sure, and smartphones are supposed to be phones first. Yet making calls is way down the list of what I do on my iPhone. Texting, e-mail, Internet browsing and company specific Apps take up most of my time. I even spend more time on social media or playing games than I do talking on the phone.
Sure, and smartphones are supposed to be phones first. Yet making calls is way down the list of what I do on my iPhone. Texting, e-mail, Internet browsing and company specific Apps take up most of my time. I even spend more time on social media or playing games than I do talking on the phone.
Because iPhone, being a cellular connected device (i.e., phone) was a phone first. From there it's functionality extended into more avenues of usage, but first and foremost, it was a solid phone. Apple has, through their focus on what the iPhone is, extended the definition of a phone, right?
Apple put an amazing attention to detail making sure the ? Watch is a watch. Its classical faces, its various Watch-like sounds, its customizability, its input mechanisms... When we are able to dive deeper into the UI, I guarantee there will be more simply because the ? Watch is, first are foremost, a solid watch.