Even Lowball Sales Estimates for Apple’s iWatch Are Impressive

Source: iWatch Concept by Todd Hamilton

Although Apple (NASDAQ:AAPL) hasn’t yet confirmed the existence of its long-rumored iWatch, analysts are continuing to offer their best guesses on what an iOS-powered wrist-worn device could add to the company’s bottom line. BMO Capital Markets’ Keith Bachman is the latest analyst to weigh in with his opinion on Apple’s expected wearable tech product.

In a research note to investors obtained by Apple Insider, Bachman offered three different scenarios based on three different percentage rates of penetration among Apple’s estimated iPhone user base of 335 million. Many analysts are using the iPhone user base as a starting point because it is widely believed that Apple’s iWatch will primarily operate as an accessory device to the iPhone.

For his low end estimate, Bachman assumed that at least 10 percent of iPhone users would purchase an iWatch with an average selling price of $250. This level of penetration would allow Apple to sell around 33.5 million iWatch units in calendar year 2015. If 15 percent of the installed base of iPhone users bought an iWatch, Apple would sell nearly 50.3 million iWatch units. At the high end of the spectrum, Apple could sell as many as 67 million units if 20 percent of iPhone owners purchased the iWatch.

Assuming a gross margin of 25 percent on the iWatch, Bachman’s low end sales estimate of 33.5 million units would add 3.1 percent to Apple’s earnings per share in calendar year 2015. Sales of 50.3 million units would add 4.6 percent to EPS in 2015, while the high end estimate of 67 million units would add 6.2 percent to Apple’s EPS next year. As noted by Apple Insider, BMO Capital Markets is bullish on Apple with an “Outperform” rating and a $98 price target.

Most of the industry rumors and analysts’ predictions about the iWatch point to a health-monitoring device that will work in conjunction with Apple’s recently unveiled HealthKit health data storage platform and associated Health app. A recent report from Japan’s Nikkei predicted that the device would be released in October and would feature various biometric sensors and a curved organic light-emitting diode (OLED) touchscreen. However, Bachman believes the iWatch will have to be more than just a health-tracking device if it is going to reach the higher end of his sales estimates.

“We think a key driver of adoption will be meaningful applications,” wrote Bachman, according to Apple Insider. “We believe that the initial focus will be health and fitness applications, but to reach 20 percent adoption levels, Apple will need to have more applications than just health and fitness, to include applications for professional/work usage.”

Although Bachman believes that the iWatch will need to expand its functions in order to facilitate widespread adoption, it should be noted that even his low end sales estimate of 33.5 million units would make the iWatch an incredibly successful product. According to data provided by Apple Insider, Apple sold almost 14.8 million units of the iPad during its first year of availability, while the iPhone only sold 6.1 million units.

Bachman isn’t the only analyst to offer sales projections for Apple’s iWatch. Assuming an average selling price of $300, UBS’ Steven Milunovich predicted that Apple would only sell 21 million iWatch units in fiscal 2015 and 36 million units in fiscal 2016, reports TheStreet. On the other hand, RBC Capital Markets analysts Amit Daryanani and Mark Sue assumed that the iWatch would be priced between $175 and $225. Based on their model, Apple could sell around 50 million units in the first year of availability, reports the Financial Post.

Although its information could not be independently verified, Nikkei’s unnamed sources indicated that Apple is planning to produce around 3 to 5 million iWatch units per month, or 36 to 60 million units per year.  This level of production would encompass the estimates provided by most analysts and industry watchers. As noted by Nikkei, this level of production also indicates that Apple is “confident of the new product.”

Follow Nathanael on Twitter (@ArnoldEtan_WSCS)

More From Wall St. Cheat Sheet: