“Apple Inc. is facing continued supply constraints that could weigh on watch sales and margins this calendar year, but Apple Watch is expected to eventually become Apple’s most profitable product category, even above the iPhone, according to CLSA analyst Avi Silver,” Jennifer Booton reports for MarketWatch.
The analyst “lowered his fiscal 2015 Apple Watch forecast to 16 million from 20.5 million previously. But Apple Watch is eventually expected to have ‘very positive margin’ contribution, and Silver left his 2016 unit estimate unchanged at 35 million,” Booton reports. “He also left his EPS estimates largely unchanged, saying the troubling Apple Watch launch should be mostly offset by stronger-than-expected iPhone demand, particularly in China.”
Read more in the full article here.
MacDailyNews Take: “Can’t make ’em fast enough” is a good problem to have – as long as it doesn’t last too long. This holiday season will be big for Apple Watch, if Apple can get supply/demand into some sort of reasonable balance. As for Apple Watch becoming more profitable than iPhone, when does “eventually” arrive, exactly? Three years? Five years?
How, exactly? For every Apple Watch there must also be at least one iPhone, and some iPhone owners will not buy the Watch.
There are no iPhones with a multi-thousand dollar unit margin. A single sale of a $17,000 Watch Edition makes as much clear money for Apple as a thousand or more iPhones.
There won’t be enough sales of the Apple Watch Edition for it to have much of an impact on the overall percentage of profits.
I thought that in the beginning, not so sure now. If every millionaire in the country decides to buy one so they can say they have it but choose not to wear it, that can add up. Starting to see it on a lot of successful wrists. The next stage is seeing it on wanna-be wrists, and there are even more of those.
Either way, they are of “limited quantities”, so eventually they would be sold out permanently.
It will be interesting to see what the average Watch sales price turns out to be. Certainly a lot higher than the basic Sport and I assume that already has a good margin.
The cheapest iPhone is $650, guessing an average iPhone is $750 with a margin around 40% its profit is $300.
Apple Watch costs have been estimated at $100 by people who probably know nothing Jon Snow, but going with that:
– $350 Sport, profit $250 ~ 1 iPhone
– $550 Regular, profit $450 ~ 2 iPhones
– $1000 Regular, profit $900 ~ 3 iPhones
– $10,000 Gold – $2000 gold etc, profit $8,000 ~ 25 iPhones
– $17,000 Gold – $3000 gold etc, profit $14,000 ~ 45 iPhones
Average ratio depends on the mix, but lets say an average of 2.
That implies when 1 Watch is sold for every 4 iPhone, the Watch profits will be 50% of iPhone profits, which would be huge.
If people really do start finding Watches indispensable, and 1 Watch is sold for every 2 iPhones, then profits would be roughly equal.
(Disclaimer: no idea how accurate any of this is.)
Keyword: profit
Nothing was said about unit sales or revenue surpassing iPhone.
Maybe the phrasing about being more profitable is because the gold watches will be considerably more profitable per unit. Whether that could make the Watch division more profitable than the iPhone division comes down to how you expect the various versions of Watch to sell and how you see iPhone doing in the future.
My guess is that Watch will be a very nice earner, but not exceeding iPhone, nor getting close either because iPhone still has a lot of potential for greatly increased sales.
“But Apple Watch is eventually expected to have “very positive margin” contribution” that’s from the article.
So, the intent wasn’t that the Watch would contribute more profit to Apple’s total, but that it would contribute higher margins, i.e., above 40%.
That’s when you know a product is a failure, when the company starts making nonsense predictions.
Remember Microsoft’s 60-million Windows 8 licenses sold. Don’t forget that Windows Phone was supposed to have over 20% of the smartphone market.
Everywhere I see stories popping up about how unintuitive, useless and horrible the Apple Watch interface is. Just go on YouTube. The only segment defending this POS are flamboyantly gay, Tim Cook era, dyed in the wool, brain-dead, tight hipster pants wearing, Apple Fanbois!
Enjoy your watch cupcake
😛
When you file your income taxes do you list your occupation as “paid internet troll” and as “brain dead bottom feeder.” Inquiring mind wants to know.
I’m sure the Apple Watch will be profitable. I doubt that it will have higher margins than the iPhone because volume is important in reducing R&D overhead and component costs.
Currently the Apple Watch is tied to the iPhone but as the tech develops it is likely to become independent.
But how can this be when almost all the critics said Apple Watch would fail. 😉
Heard that routine before… about nearly every Apple product ever sold. Where’s my nickle???
Seems like the supply of watches is catching up. I ordered a SG 42mm Sport on May 4th. Originally said that it would ship in July. Then is said between June 28th and July 8th. Then between June 26th and July 6th. As of yesterday it was changed to June 16th to June 22nd.
At this rate the watch will be here next week.
You will enjoy it!
I ordered two the week of Mother’s Day (one for my wife and one for my mom), and one arrived last week, the other this week. They do seem to be catching up.
What new miracle Kool-Aid are these analyst drinking? There is no way. No way!
WHEN the Watch has a considerable number of great features that don’t require any iPhone, THEN we’ll talk. Until then, this is just more silly tech journalism IMHO.
I don’t see why Apple Watch’s dependence on an iPhone 5 or newer is a negative. Seems like a great thing to share the load with an iPhone since it’s always nearby anyway.😕
I’ve only been considering the Watch from the POV of so many articles about it. Apparently, it’s supposed to outsell the iPhone. I have no idea why or how. If that was the case, it would have to have its own killer features convincing people to buy it without an iPhone. The whole discussion is lame, silly and ignorant, IMHO. So many tech journalists want to be messianic or something, and none of them are.