Analyst: Here’s Why an Apple Watch Makes Sense

Apple (NASDAQ:AAPL) should not give up on its traditional strength of creating new product categories, according to UBS analyst Steve Milunovich, who said wearable computing was a “natural evolution” for the company.

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There have been several reports suggesting Apple’s entry into the wearable computing sector with a smart wristwatch. Bloomberg said it had a 100-person team working on the development of the new product and The Wall Street Journal said that the company had already discussed production of the watch with manufacturing partner Foxconn.

Milunovich, who has a Buy rating and a $600 price target on Apple’s stock, said such a device was a good idea and the company should continue opening up new product categories and pre-empting competitors.

“The reason Apple has been so successful is that it is credited with creating and often dominating new product categories,” the analyst wrote in a note to clients on Friday, according to Barron’s. “We would add that Apple isn’t first to market but is first to mind in defining new products, often through ease of use breakthroughs based on new interface technologies (wheel, touchscreen, voice recognition).”

Milunovich added that the Mac, the iPod, the iPhone, and the iPad each launched with “radical differences” from other products in the market at the time…

The analyst continued his argument to the question of a lower-priced iPhone, which is also rumored as a possible new release from Apple. According to Milunovich, the iPhone had retained its status as an aspirational purchase. He pointed out that the smartphone enjoyed a 90 percent retention rate.

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And while there were other “good enough” phones at lower price points undercutting Apple, especially in Asia, a cheaper iPhone would “produce only a few more dollars in earnings per share and be viewed as further incrementalism.”

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