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Apple Watch Is on Its Way to Becoming a $6 Billion Business, but Is That Really Enough?

Sunday - 11/06/2017 15:48
IDC's estimate indicates the watch added to the sales momentum it saw in seasonally big Q4

Two years after the original Apple Watch launched, how successful one considers the smartwatch to be is really a matter of perspective.

The glass-half-empty view: The watch is far more of an iPhone accessory business than Apple Inc.'s (AAPL) "next big thing." Its annual sales still appear to be a fraction of Apple's Mac and iPad revenue, never mind iPhone revenue.

The glass-half-full view: Even if its sales have fallen short of initial hopes, it looks as if the watch is adding over $4 billion per year to Apple's top line, and at a high margin. And there are reasons to think that contribution will grow meaningfully in the coming years.

On Monday, June 5, watch shipment estimates from research firm IDC drove home how the business is rebounding, after having struggled in early 2016. And soon afterwards, Apple made a couple of announcements at its WWDC developer conference that suggest it understands a thing or two about how to grow the watch's appeal.

IDC estimated watch shipments, boosted by last September's launch of the Apple Watch Series 2, rose 64.1% in Q1 to 3.6 million units. That was good for an estimated 14.6% wearables unit share; revenue share is bound to be much higher, since a large portion of the 24.7 million wearables IDC thinks shipped in Q1 consist of fitness trackers with sub-$100 prices.

Regardless, IDC's estimate indicates the watch added to the sales momentum it saw in seasonally big Q4, when shipments rose an estimated 16% to 4.6 million. And it largely fits with what Apple reported in early May: The company announced its "Other Products" revenue, which covers the Apple Watch, Apple TV set-tops, iPods, Beats headphones, AirPods and accessories, grew 31% in calendar Q1 to $2.87 billion.

Gauging just how much of that "Other Products" revenue was provided by the watch remains a guessing game, since Apple still declines to give a number. The fact that individual models costs anywhere from $269 (the current price for the Series 1 with a 38mm case) to over $1,000 (certain Series 2 models featuring premium bands and/or case materials) doesn't make things easier.

If one assumes a $400 average selling price (ASP), that suggests the watch produced $4.3 billion in revenue last year, based on IDC's 2016 shipment estimate of 10.7 million. If one uses the $450 ASP estimate provided by some analysts, revenue stands at $4.8 billion.

Editors' pick: Originally published June 7.

Source: The Street:

 Key: Apple, Apple Watch

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