Apple Watch gross margins will start low but then rise

“The gross profit margin for the Apple Watch is below Apple’s company average but has the potential to well exceed that average, UBS said in a research report Wednesday,” Patrick Seitz reports for Investor’s Business Daily.

“Based on a teardown analysis of the smartwatch, UBS estimates that the product’s gross margin initially will be about 34% but could rise to 57% when it hits an annual volume of 40 million to 50 million units,” Seitz reports. “UBS is modeling for 31 million units in fiscal 2016, which starts Sept. 27. Apple said that it expects the Apple Watch’s gross margin will be below the corporate average of about 39% in the June quarter. Apple’s gross margin was 40.8% in the March quarter.”

Apple Watch Edition in 42mm 18-karat yellow gold with midnight blue classic buckle
Apple Watch Edition in 42mm 18-karat yellow gold with midnight blue classic buckle

 
“UBS estimates the initial gross margin on the entry-level Sport version of the Apple Watch to be 21% to 23%, including start-up costs. It estimates the midrange Apple Watch to have a margin above 45%,” Seitz reports. “UBS predicts that Sport models will make up 65% of Apple Watch sales, with midrange watches at 35% and luxury Edition models at a fraction of sales.”

Read more in the full article here.

MacDailyNews Take: Mid-range Apple Watch sales will likely increase with subsequent Apple Watch generations as a significant percentage of early adopters aren’t buying the Sport for its lightweight sport use, but rather simply as an inexpensive entry into Apple Watch. Once they decide that they love the Apple Watch via their first generation Sport models, a significant percentage will opt for the mid-range Apple Watch on their next go ’round.

23 Comments

    1. It’s great for me. It’s only slow sometimes it seems. It is kind of annoying when I’m wanting to flip a Hue light switch and it takes 10 seconds to open, the screen shuts off from inactivity and you have to wake it back up again, but that only happens some of the time, hopefully it gets better.

      Either way, this particular issue will be fixed when I can just ask Siri to manage the light for me, with HomeKit. But still doesn’t address the slowness of this and other third party apps.

      It was also kind of lame when I was trying to show off the cool way the weather is presented on the watch and it took 10 seconds to bring up the current weather. I explained how it looked before the watch could just show them.

    2. Unfortunately, that decision has helped damage the stock. If they would of given any number or guidance the stock price would be in the $140’s or $150’s instead of being mired in the $120’s muck.

      People are excited about this new innovation, but the lack of communication has soured the bean counters’ palates.

      1. “would OF”? Auditory perception ≠ standard written grammar. “Would HAVE” is the expression. (Sorry, this and the “it’s/it”s misusage drive me bonkers. Apparently they both = rocket science today.)

          1. F off, silverhawk1. We will manage this discussion without you pissing in the punchbowl whenever someone says something that isn’t 100% Apple worship. Don’t you have anything better to do?

      2. What difference does it make? The stock price will get there when the numbers come in. What’s the hurry? If the price goes up ahead of the numbers, then people complain it didn’t go up when the numbers do come out. It can’t do both.

  1. You realize the closest thing to a “mid-range” Apple Watch is the $10,000 38mm Apple Watch Edition, because that’s the closest one to being in the middle of 349 and 17,000. I of course realize you mean the Apple Watch steel models.

  2. MDN take is right on the money. If the functionality of the Watch Sport (I hope will arrive soon) provides significant value, the next one will be a stainless steel model. Most people I know who will be buying the Watch are taking this approach.

  3. The stock is in the doldrums because this watch is flopping like a corn dog swallowing, 400-pounder diving into a 3-foot swimming pool.

    This will go down in history as the worst product Apple ever shat out the bowels of Cupertino.

    Steves Jobs would be spinning in his grave, if he wasn’t actually lying dead inside his grave.

    Tim Cook and his rainbow underwear wearing executive board are laughing at all the fools who bought Apple Watches and single-port Macbooks.

    Welcome to the new Apple.

  4. Completely disagree with the MDN take. I bought the black Apple WATCH SPORT specifically because it’s the lightest of all models plus it reminds me of all the Casio watches I wore before now. No way am I ever going to buy any model other than the Space Gray 42mm Apple WATCH SPORT. I don’t like any of the heavier models at all.💥⌚️😰😱

  5. Apple never sacrifices margins so this is a moot point. Some random calculation of component costs at launch means nothing considering the product ramp is still going occurring. Give it 6 months and the Apple Watch margins will be better than any other Apple hardware. The margins on the edition watch will be huge and the band accessories will shift the margins higher.

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