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

Posted:
in Apple Watch edited April 2015
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.
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Comments

  • Reply 1 of 52
    MacProMacPro Posts: 19,471member
    That would be a very sensible approach. No need to build inventory that isn't needed, Apple isn't Samsung after all! :D
  • Reply 2 of 52
    So the same thing we've been saying here.

    Well, I guess an analyst has to be right sometimes.
  • Reply 3 of 52

    Well they certainly weren't mixing and matching on the fly as pre-orders were being taken. I noticed disparities between the shipping times of watches with certain straps and those same straps as stand alone items. For example, from memory, the SS with Classic Buckle was one of the last to lose it's 4/24 - 8/5 shipping window. But at the same time SS with Milanese Loop would be shipping in June will the Milanese loop by itself would be shipping earlier in May. If Apple was mixing and matching to demand, they could have sold some of their SS watches with the Milanese Loops instead of the Classic Buckles to even out supply.

  • Reply 4 of 52
    sflocalsflocal Posts: 5,941member
    Quote:

    Originally Posted by digitalclips View Post



    That would be a very sensible approach. No need to build inventory that isn't needed, Apple isn't Samsung after all! image



    No... because then Apple would count them as "Sold". :)

  • Reply 5 of 52
    ecatsecats Posts: 272member
    Analysts have a habit of making broad, over simplified assumptions from small pieces of data. (such as the ever unreliable "supply chain checks") this is no exception, it's so simple, it's inane. Seemingly ignoring obvious, well supported conclusions in favour for dubious, yet attention grabbing, ones.

    The idea that Apple were blind to demand before pre-orders commenced is patently incorrect. Apple's own design staff have a history of producing nearly identical bands (see Marc Newson's Ikepod watches.) Thus Apple would know popular options even before purchasing watch sales data/research. Apple also had a trove of potential buyers using the Apple Store app to register their preferred option well before pre-orders became available.

    It's a gross oversimplification to suggest that Apple prebuilt very few models and over relied on pre-orders to direct construction. Firstly this doesn't reflect the lead time to produce each watch housing before launch day deliveries, and secondly this would also mean that all watches in back order would have a similar wait time. Instead there are noticeable differences between similar models.

    Certainly Apple would be tuning production to the popular pre-order models, however the much more likely reason why the watches sold out so quickly is very simple: The launch was very successful.
  • Reply 6 of 52
    gatorguygatorguy Posts: 23,363member
    Noted this video posted today showing the Apple Watch boot time and sequence. Looks like it takes just over a minute to start up, but it's certainly possible it's taking longer than it will in actual use if the somewhat longish time is partly due to establishing an in-store wi-fi connection. Should only be another few days before consumers post their own videos.

    [VIDEO]
  • Reply 7 of 52
    rogifanrogifan Posts: 10,669member
    gatorguy wrote: »
    Noted this video posted today showing the Apple Watch boot time and sequence. Looks like it takes just over a minute to start up.

    [VIDEO]

    I find this kind of meaningless considering it appears to be a store unit running demo software. Who knows what the boot time will be for watches sold to consumers.
  • Reply 8 of 52
    Quote:

    Originally Posted by TheWhiteFalcon View Post



    So the same thing we've been saying here.



    Well, I guess an analyst has to be right sometimes.

    Frankly, I think they get their serious material from sites like these.

  • Reply 9 of 52
    jbdragonjbdragon Posts: 2,246member
    Quote:

    Originally Posted by Rogifan View Post





    I find this kind of meaningless considering it appears to be a store unit running demo software. Who knows what the boot time will be for watches sold to consumers.

     

    You're exactly right.  It's booting up into a Demo mode.  What it'll finally be like is unknown.   Still It's a computer, and like all computers, it'll have to bootup.  Any and all Smartphones do this.  You won't be shutting down your watch normally forcing it to bootup.  It'll just always be running like your Smartphone which is always running, unless you do a shutdown and then it has to boot back up which takes time.   Unless you run the watch until you kill the battery completely, you would normally just take it off and hook the charger to it, then put it back on in the morning and start using it right away with no bootup needed.  The only time it would be booting up is if you had some issue and it was acting up and so you did a shutdown and then bootup.  Or if you drained the battery down to nothing.  Or there was a Software update on the watch.  Like your phone, it would install and then reboot.

     

    I'm sure other Smart Watches go threw the same type of thing also, otherwise it's not a smart watch.  

  • Reply 10 of 52
    thomprthompr Posts: 1,516member
    Quote:

    Originally Posted by TheWhiteFalcon View Post



    So the same thing we've been saying here.



    Well, I guess an analyst has to be right sometimes.

    Yes, the same thing several of us were saying on the morning after pre-orders started.  And I recall several other people on here essentially telling us that we were crazy.

     

    Thompson

  • Reply 11 of 52
    ""Building huge inventories of all the models of watches and waiting for consumers to order them risks warehousing large quantities of unsold merchandise."

    They will hold back supply to create demand. That is simply how other supposed luxury items create demand.
    99 cent to $4 for a strap and $15 to $20 for the main watches is as close to zero risk as you can get.
  • Reply 12 of 52
    And further delays probably tell us the current Beta like watch is deemed too unstable !
  • Reply 13 of 52
    maestro64maestro64 Posts: 5,034member
    ecats wrote: »
    Analysts have a habit of making broad, over simplified assumptions from small pieces of data. (such as the ever unreliable "supply chain checks") this is no exception, it's so simple, it's inane. Seemingly ignoring obvious, well supported conclusions in favour for dubious, yet attention grabbing, ones.

    The idea that Apple were blind to demand before pre-orders commenced is patently incorrect. Apple's own design staff have a history of producing nearly identical bands (see Marc Newson's Ikepod watches.) Thus Apple would know popular options even before purchasing watch sales data/research. Apple also had a trove of potential buyers using the Apple Store app to register their preferred option well before pre-orders became available.

    It's a gross oversimplification to suggest that Apple prebuilt very few models and over relied on pre-orders to direct construction. Firstly this doesn't reflect the lead time to produce each watch housing before launch day deliveries, and secondly this would also mean that all watches in back order would have a similar wait time. Instead there are noticeable differences between similar models.

    Certainly Apple would be tuning production to the popular pre-order models, however the much more likely reason why the watches sold out so quickly is very simple: The launch was very successful.

    The analysis actually makes sense and of all the possibilities presented to date this holds the most credibility. I personally was going down this path since all the other paths mean Apple failed and failed bad. Tim Cook comes from the supply chain side of the business and if their plan was to have as many customer have their watches on the 24th means they fail, it not like Apple does not have enough data on its customers. I know Apple know about all the computers, phones, ipod, ipads I bought from them in the last 10 yrs. But they could not predict whether I was going to buy a Space Black Stainless or AL Sport version or settle in the middle somewhere.

    The most complex supply chains to get perfectly right is high volume and high mix, and if Apple got this wrong they could be sitting on lots of expensive inventory and have lots of upset customers. Going with a small pre-order build quantities of all models and then moving to a build to order, especially when you do not have to worry about perishable demand this makes sense. It is not like the Apple watch customers will take their money and buy a Samsung Watch. This way, Apple only builds what customers wants. This is not like making 3 different phone models, remember they have 4 different faces and how many bands.

    If Apple ended with the wrong mix and end up with inventory this would have shown up in their 10K report which the Analysis would have discovered easily and ripped Apple a new one for a miss like this. In this case it was okay for Apple to go to a build to order modal with lead times in the 4 to 6 weeks range which is typical. Longer lead time means that they sold more than the standard lead time could handle.
  • Reply 14 of 52
    thomprthompr Posts: 1,516member
    Quote:

    Originally Posted by ECats View Post



    Analysts have a habit of making broad, over simplified assumptions from small pieces of data. (such as the ever unreliable "supply chain checks") this is no exception, it's so simple, it's inane. Seemingly ignoring obvious, well supported conclusions in favour for dubious, yet attention grabbing, ones.



    The idea that Apple were blind to demand before pre-orders commenced is patently incorrect. Apple's own design staff have a history of producing nearly identical bands (see Marc Newson's Ikepod watches.) Thus Apple would know popular options even before purchasing watch sales data/research. Apple also had a trove of potential buyers using the Apple Store app to register their preferred option well before pre-orders became available.



    It's a gross oversimplification to suggest that Apple prebuilt very few models and over relied on pre-orders to direct construction. Firstly this doesn't reflect the lead time to produce each watch housing before launch day deliveries, and secondly this would also mean that all watches in back order would have a similar wait time. Instead there are noticeable differences between similar models.



    Certainly Apple would be tuning production to the popular pre-order models, however the much more likely reason why the watches sold out so quickly is very simple: The launch was very successful.

    I favor the hybrid answer:  (1) Apple built enough of the electronic components for the two distinct models of internals (the two sizes) to be able to complete build-to-order in rapid fashion (4-6 weeks) but also prebuilt a modest number (a million or so) of complete models that they knew would be most popular due to feedback on their site, AND (2) the launch was very successful.  Both can be true.

  • Reply 15 of 52
    thomprthompr Posts: 1,516member
    Quote:

    Originally Posted by Maestro64 View Post





    The analysis actually makes sense and of all the possibilities presented to date this holds the most credibility. I personally was going down this path since all the other paths mean Apple failed and failed bad. Tim Cook comes from the supply chain side of the business and if their plan was to have as many customer have their watches on the 24th means they fail, it not like Apple does not have enough data on its customers. I know Apple know about all the computers, phones, ipod, ipads I bought from them in the last 10 yrs. But they could not predict whether I was going to buy a Space Black Stainless or AL Sport version or settle in the middle somewhere.



    The most complex supply chains to get perfectly right is high volume and high mix, and if Apple got this wrong they could be sitting on lots of expensive inventory and have lots of upset customers. Going with a small pre-order build quantities of all models and then moving to a build to order, especially when you do not have to worry about perishable demand this makes sense. It is not like the Apple watch customers will take their money and buy a Samsung Watch. This way, Apple only builds what customers wants. This is not like making 3 different phone models, remember they have 4 different faces and how many bands.



    If Apple ended with the wrong mix and end up with inventory this would have shown up in their 10K report which the Analysis would have discovered easily and ripped Apple a new one for a miss like this. In this case it was okay for Apple to go to a build to order modal with lead times in the 4 to 6 weeks range which is typical. Longer lead time means that they sold more than the standard lead time could handle.

    I was ripped up on this forum for suggesting something like this within mere hours of the sellout on the morning of the tenth.

  • Reply 16 of 52
    stanhopestanhope Posts: 160member
    His numbers don't work. If Apple watch preorders were 1 millions as has been oft quoted 3.1 million shipped April 24 to May 8 means all of us get our watches in that time frame.
  • Reply 17 of 52
    My order still just says processing not preparing for shipment , will be interesting to see if it ships overnight from China or where it comes from
  • Reply 18 of 52
    thomprthompr Posts: 1,516member
    Quote:

    Originally Posted by aBeliefSystem View Post



    ""Building huge inventories of all the models of watches and waiting for consumers to order them risks warehousing large quantities of unsold merchandise."



    They will hold back supply to create demand. That is simply how other supposed luxury items create demand.

    99 cent to $4 for a strap and $15 to $20 for the main watches is as close to zero risk as you can get.

    Apple doesn't need to "hold back supply to create demand" anymore.  Hype and demand are already swarming around their brand, if you hadn't noticed.  If Apple could accurately predict demand and required inventory levels across all SKUs of this product and could also ramp up to meet those levels, then I'm sure they would have done just that.  They couldn't.  Watch as they work to get the supply/demand into balance within mere months, an impressive feat given the nature of these devices and the sprawling supply chain of vendors.

  • Reply 19 of 52
    bobschlobbobschlob Posts: 1,074member

    Build to order sort of makes sense, I guess. But I also find that prospect frightening.

    (prepared to cut their losses if ?Watch fails)

  • Reply 20 of 52
    thomprthompr Posts: 1,516member
    Quote:

    Originally Posted by tkrunner1738 View Post



    My order still just says processing not preparing for shipment , will be interesting to see if it ships overnight from China or where it comes from

    It probably won't ship overnight from its origin, if past launches of iPhones are any guide.  It usually gets to "prepare for shipment" and then rapidly to "shipped" 3-4 days before delivery day.  But then it ships from one location in China to another location in China, where it sits for a few days (maddening!).  Finally, with a day to spare, it quickly mvoes to Alaska (perhaps), then to Memphis (perhaps), then to final destination (your city).  The last few jumps happen in the last 24 hours... so it's kind of "overnight" from the final China port-of-call.

     

    At least that's what I've observed for iPhone preorders over the years.  :)

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