Is the Apple Watch as Popular as Apple Hoped?
Apple’s quarterly financial results are in, and, as expected, Apple didn’t disclose how many Apple Watches it sold last quarter. Instead, it included the Apple Watch’s sales in a miscellaneous category that also includes revenue from the iPod, Apple TV, and Beats accessories. For that category, it reported $2.64 billion in revenue, up from $1.7 billion in the category last quarter. TechCrunch’s Romain Dillet reports that Apple chief financial officer Luca Maestri said that the Apple Watch accounted for “well over 100% of the growth in Other,” and chief executive Tim Cook offered further insight into the performance of the category:
If you look at Other products category, and look at the revenue in here, it would not be an accurate thing to just look at the sequential change, or the year over year change and assume that was just Watch revenue. Because the aggregate balance of that category, both sequentially and year-over-year, is shrinking. Obviously the iPod is part of that but there are other things in there (accessories and so forth) that are shrinking.
Analyst estimates before Apple’s earnings announcement ranged from the 3 million to the 5 million unit mark. But the New York Times reported that in the hours after the earnings call, analysts calculated that Apple had sold significantly fewer than that, with estimates falling between 1.5 million and 3 million watches. Jackdaw Research analyst Jan Dawson calculated that Apple had sold between 2 million and 2.5 million watches in the quarter, down from a previous prediction of 5 million. Toni Sacconaghi of Sanford C. Bernstein estimated that Apple had sold about 2 million watches, falling short of his forecast of 3 million units.
Despite the fact that calculations fell below analyst expectations, Cook told investors that “sales of the Watch did exceed our expectations and they did so despite supply still trailing demand at the end of the quarter,” according to TechCrunch. “And to give you a little additional insight,” Cook explained, “through the end of the quarter, in fact, the Apple Watch sell-through was higher than the comparable launch periods of the original iPhone or the original iPad.”
Apple chief financial officer Luca Maestri told the Times that the watch’s sales in its first nine weeks exceeded those of the iPhone and the iPad in their first nine weeks. As The Verge’s Dieter Bohn points out, Apple itself said that the iPad sold 3 million units in the first 11 weeks, which gives some context as to the performance of the watch.
While the watch’s sales do compare favorably with those of other Apple products, several analysts have noted that it’s impossible to determine whether the watch is a hit or a miss based on the results of a single quarter. Sacconaghi told the Times, “It’s way too early to render a verdict on the watch. All we can say is relative to expectations, whether those were misplaced or not, the watch was a disappointment this quarter.” It’s also difficult to estimate how Apple’s revenue corresponds to unit sales, since factors from the Apple TV’s price drop to sales of Beats accessories to the wide range in Apple Watch model prices are all relevant.
On the earnings call, Cook said that he expects the Apple Watch to be a strong seller in the upcoming holiday season. Additionally, Apple’s growing appeal overseas — revenue from international regions accounted for 64% of the quarter’s overall revenue — offers big potential for growth. Cook said on the earnings call, “Our objective for the quarter wasn’t primarily sales. Beyond the very good news on sales, we’re more excited about how the product is positioned for the long term because we’re starting a new category.” He added, “as I back up and look at this with 8,500 apps, we’ve already announced the next operating system watchOS 2 — it will bring native apps, which are going to be killer, to the watch.”
Even if the Apple Watch’s sales didn’t live up to analysts’ high expectations, the watch seems to be soundly beating the other smartwatches on the market. As Mark Sullivan points out at VentureBeat, a new report from Strategy Analytics indicates that the Apple Watch accounted for 75.5% of total worldwide smartwatch sales in its debut quarter. The research firm believes that Apple sold 4 million watches in the quarter — higher than many other estimates — and estimates that Samsung, which came in second at 7.5% of the market, sold only 400,000 smartwatches in the quarter.
Farhad Manjoo reports for the New York Times that the Apple Watch seems to be following the same familiar script established by Apple’s other products. “A first-generation device is always criticized as overpriced and a bit lacking in utility and is often vulnerable to the charge that it is a solution in search of a problem,” Manjoo explains. “Then, over a few years, Apple and its customers figure out the best uses for the gadget, and the company methodically improves design and functionality to meet those needs. It also tends to lower its prices. Correspondingly, sales explode.”
Early criticism of a new Apple product has been proven, time and time again, to be irrelevant to the bigger picture. It takes time to figure out the true strengths and shortcomings of a new product, and Apple is already moving more quickly than it did with previous products to address the issues with the Apple Watch. Dawson told Manjoo that the updated operating system will “be a big part of generating more compelling-use cases for the watch for mainstream users, because that’s when we’ll really start to see a flood of third-party apps that make sense.”