How Profitable Can Apple’s iWatch Be?
Every Apple (NASDAQ:AAPL) watcher has been waiting rather fondly for a high-definition television from the company. After all, it would be an uncharted product category for the company, and the widespread expectation is that the device would provide the big catalyst Apple’s stock has missed over the last few months. It would also potentially carry a high margin, boosting that critical figure on the earnings sheet and possibly allowing Apple to simultaneously introduce lower-margin mobile products without sacrificing on overall profits.
However, according to one new argument, there may be another new product rumored to be in Apple’s pipeline that could prove even more profitable than an HDTV. Bloomberg argued on Monday that the current wristwatch market had a much higher gross margin than HDTV sales.
Citigroup analyst Oliver Chen told Bloomberg that the current gross margins on watch hardware were about 60 percent — four times higher than the margins on television. “This can be a $6 billion opportunity for Apple, with plenty of opportunity for upside if they create something totally new like they did with the iPod — something consumers didn’t even know they needed,” Chen said.
According to the analyst, if Apple took even a 10 percent share of the watch market, it could earn a gross profit of about $3.6 billion. Meanwhile, the TV industry will generate an estimated $119 billion in sales this year. With a 10 percent share of this market, Apple would only earn $1.79 billion…
The report added that Apple may launch the smart wristwatch as soon as this year. It was earlier reported that Apple had a 100-person team working on the device. The smart watch could potentially sync with an iPhone, letting users make calls, see who is calling, use navigation apps, etc.
“Apple can merge fashion with function,” NPG Group analyst Marshal Cohen told Bloomberg. “An Apple watch could triple the size of the watch business in a year or two. They have the opportunity to get everyone that owns a cell phone to go out and buy another watch.”
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