Will There Be Enough Apple Watches for Customers?
With the retail debut of the Apple Watch fast approaching, many questions about how the wearable will function, what it will cost, and what configurations consumers will be able to choose among have been answered. We even have some insight into how Apple will showcase and sell its first wearable device, and what will happen when you go to your local Apple Store to try on and purchase an Apple Watch.
But there’s another important question that we’ll only get an answer to in the coming months: Will Apple be able to keep up with the demand for the Apple Watch? While analysts can’t seem to agree on how many Apple Watches the company will sell, Apple Insider reports that yield and manufacturing issues are common during the ramp-up in development of any Apple product, and the Apple Watch seems to be no exception.
When the iPhone 6 and iPhone 6 Plus debuted last year, Apple struggled to keep up with demand for the new phones for months. The same thing could happen with the Apple Watch, and a source familiar with Apple’s internal logistics reports that with all of the new technology introduced with the wearable, the company has faced production issues “at every stage of development.” But the source says that while there could be some yield issues at launch, the challenges are not new and aren’t a surprise to the company’s leadership, and Apple’s management is expecting a shortage of Apple Watches at launch.
The Apple Watch is the first Apple device to to use an OLED display. The stainless steel Apple Watch and the luxury Apple Watch Edition also feature sapphire, and all three models of the Apple Watch feature the new Digital Crown and a heart-rate monitor. Production issues should be no surprise for a product that packs this much new technology into such a small device.
According to Apple Insider, these details follow a dubious report from China on the state of the Apple Watch’s production. That report claims that just 30-40% of the Apple Watch OLED panels rolling out of LG’s factories are usable, forcing Apple to cut its launch production targets from up to 3 million per month to around 1.5 million per month. Manufacturing the plastic-backed flexible OLED panels is a vastly different process than the one used for glass-backed panels, and requires new methods of pulling a vacuum between the panel and the substrate. The report holds that contract manufacturer Quanta Computer, the lead assembler for the Apple Watch, is having trouble adapting its processes for the much smaller Apple Watch, contributing to the lowered forecast.
While the report is dramatic, it lays out an unlikely scenario. Apple Insider points out that LG is among the companies that first invented flexible OLED displays, and has been shipping them at moderately high volumes for years. And while Apple may be facing yield rates lower than it would prefer, it seems unlikely that it would see rates as low as 30%. The claims of assembly problems are also far-fetched, given Apple’s deep involvement in the production of its devices and its demonstrated ability to build and ship large quantities of devices with each successive generation of the iPhone.
So how much demand will there be for the Apple Watch when it first hits the Apple Store? (Consumers will first be able to get their hands on the Apple Watch at the company’s retail stores beginning April 10, when preorders begin. The Watch will officially launch on April 24.) Fortune recently surveyed a number of analysts as to how many Apple Watches Apple will sell in the calendar year of 2015 and got a range of estimates, from 8 million (the projection of Gene Munster at Piper Jaffray) to 41 million (the estimate of Trip Chowdry at Global Equities Research). The projections average out to 2.5 million per month. And among the analysts who offered an average selling price, the mean was $416.
Cowen analyst Oliver Chen told CNBC that while the firm thinks that smartwatches will constitute a $10 billion market over time, he thinks that the transition from traditional watches to smartwatches will be gradual. Cowen cited some of the issues that consumers are cautious about, including battery life, pricing, iPhone tethering, and water sensitivity. “Traditional watches have staying power as smartwatches [are] currently viewed by most consumers (77% of responses) as complementary.”
Meanwhile, Cantor Fitzgerald raised its price target from $160 a share to $180 on Apple due to several factors, including next month’s launch of the Apple Watch. “After five long years, Apple plans to enter a new product category with Apple Watch in April. Our current model reflects Apple Watch units of 20.6 million in the first year on the market,” the firm reported.
CNBC’s Bob Pisani compiled his own assortment of guesses from the analyst community on how many Apple Watches will sell in 2015. The lowest estimate he got was 10 to 15 million units, and the highest was 40 to 45 million — a difference of up to a factor of four. This, he reports, points to the conclusion that “No one has a clue.” How many Apple Watches the company will really sell is anyone’s guess.