Apple Inc. (NASDAQ:AAPL) may have to renew its efforts to make the Apple Watch a compelling buy says a new report on sales of the new device from Cupertino. A new report from market research firm Slice Intelligence says that Apple has sold just 2.8 million units of the gadget, coming in at the very low end of Wall Street forecasts.
The research firm said that it’s figures were on sales up to the middle of June. Wall Street was forecasting huge sales of the Apple Watch through the end of the year, but the new data may force them to change their outlook. Trip Chowdhry, the most bullish voice on the Apple Watch, said that he expects Apple to sell 40m units of the device before year’s end.
Apple gets big profits, low sales
There was some good news for Apple in the Slice report. About 20 percent of those who bought the Watch also shelled out for an extra band. Apple makes huge profit on bands for the Watch. Reuters obtained data from IHS analyst Kevin Keller that said the Sports band costs just $2.05. It sells for $49 on the Apple website, and soon in stores.
That means that though sales of the Watch are low, outlook on margins for the Watch ecosystem might be higher than previously thought. There has been some debate on the gross margins of the Watch. Big Think Analytics analyst Carl Howe, in a report released just after the Watch went on sale, said that gross margins might be as much as 60%.
That was challenged, however, by reports that the fault rate in an early batch of the Watch was very high. The failure of the Force Touch sensor appears to have been much lower in the release version of the Watch, but the initial problems may have cut into gross margins.
The Slice research analyzed the emails of 2m people who were representative of US consumers. 20,000 of those studied bought the Apple Watch. The firm said that its data lined up with trends from both Amazon.com Inc. (NASDAQ:AMZN) and the Department of Commerce.
Gene Munster is also looking for Apple to grow sales on a small base, he says that he’s looking for the firm to sell between 4o and 50m units of the device by the end of 2016.
Wall Street rethinks Watch sales
Slice Intelligence, in a report released just after the Apple Watch went on sale, said that the firm had just one million pre-orders for the device as it began to ship. Gene Munster of Piper Jaffray had the same forecast on the device, one of the most bearish on Wall Street. He says that Apple will sell just 8 million units of the Watch this year.
Trip Chowdhry, who forecasts 40m unit sales of the Apple Watch in 2015, said in a report released in the first week of June that Apple had sold 7m units of the Watch. He said that just 2 million units had arrived at doors by the end of May, but up to 5 million could be shipped by the end of June.
He kept his 40m unit target on sales of the device. Mr. Chowdhry claimed that his data was based on “various tracking methods developers use, which have an accuracy of more than 85%.”
There is a clear break-down in the estimates for Watch sales, and without any official numbers from Apple it’s not possible to put a precise figure on sales of the Apple Watch. Tim Cook said last year that Apple will hide Watch figures in the “Other” section of the firm’s accounts for the time being.
Changing the Apple Watch
Apple has already made a big change to the software that the Apple Watch runs on, and the firm is working hard to make the device appeal more to the world at large. At WWDC 2015 the firm revealed a big update to the device’s OS.
WatchOS 2 will give devs working on the Apple Watch a chance to use many of the gadget’s key features to improve the quality of the apps on the device. A strong third-party ecosystem is sure to improve the appeal of the Apple Watch, but Tim Cook and his team may need to do more in order to sell the device en masse.
In a note on Tuesday Pacific Crest’s Andy Hargreaves said that Apple needs to add “new compelling functionality” to the Apple Watch. He reckons that the firm will sell 11m units of the device through 2015, but expects that to grow in the years ahead. Mr. Hargreaves is looking for 2016 sales of 24m.
Building on the Apple Watch base
What the Apple Watch has, whether sales hit 8m or 40m this year, is the attention of the world. As more and more celebs and people on the street sport the Watch, more and more people will know about it, and will ask themselves whether or not they want one.
There are no big names on Wall Street that think the Apple Watch will fail, but there are many who think that huge first-year sales just aren’t going to happen. That means that Apple will have to build on the mindshare it has, and make the device more and more appealing as time goes on.
With the big features of the Watch only open to devs now, it will be the holiday season at the earliest that great apps begin to arrive for the Apple Watch. As soon as those apps start to be mentioned on tech sites and network TV, Apple will have more and more people really considering the Apple Watch.
That’s the way that Tim Cook and Phil Schiller managed to sell the iPhone. In its first calendar year on the market the smart phone sold just 1.4m units, and in its second year it sold just over 11 million. Last year Apple sold close to 170m iPhones.
The Apple Watch sales look low heading into the rest of 2015, but we won’t know for sure until Tim Cook and CFO Luca Maestri actually comment on sales of the device. It’s unclear if they plan to do that at all this year. The structure of the firm’s earnings makes it difficult to work out sales based on the numbers in the report.
At the earliest we’re likely to get sales numbers about the Apple Watch from the firm in its next earnings report. That report is set to come out toward the end of July, though Apple has not yet put an exact date on it. Whether or not the Slice report is right on either sales or margins remains to be seen.