Tim Cook verbatim: In defense of the Apple Watch

23 Jul 2015 | Author: | No comments yet »

Apple sells 4 million Watches: Study.

Sure, it can do many useful, even delightful things, such as showing incoming texts and email, tracking heart rates during exercise or sending digital doodles to friends. Apple stock fell down and stayed down Wednesday morning, as investors seemed disappointed by another set of record-breaking results and a lack of fireworks over Apple Watch sales figures.LOS ANGELES — Apple execs refused again this week to give any concrete sales statistics for its new Apple Watch, beyond platitudes, and saying that sales exceeded expectations.

Early Apple Watch owners seem generally happy with it, but Apple’s bigger worry should be those on the sidelines — even hardcore Apple fans, not to mention everybody else — who are waiting to take the plunge. Analysts said Apple’s investors are frankly spoiled. “The sharp plunge in the stock price can partly be attributed to the company missing projections for iPhone shipments and revenue forecasts, but is largely due to the fact that investors had become accustomed to significant earnings beats by Apple,” wrote James Chen, senior market analyst to City Index. Apple has in the past trumpeted sales figures for new products, from the iPhone, iPad and iPad to Macintosh computers, but said it wouldn’t for the Watch, because it didn’t want to give the information to competitors.

Strategy Analytics says the entire smartwatch industry–which also includes LG, Motorola and Pebble, sold 4.6 million in 2014, and 5 million for the second quarter this year, when the Apple Watch debuted. The tech behemoth reported strong sales of its signature phone in its third-quarter financial report – fully 47.5m iPhones, up more than a third year-over-year, for a net revenue of $31.4bn. Worries about the iPhone’s momentum sent Apple’s stock down nearly 5 percent, knocking about $36 billion off the company’s market capitalization. “It’s been cast as a want, not a need,” said Matt Quick, a Topeka, Kansas, engineer and Apple fan who is holding off on getting one. “I’m kind of waiting to see what next year’s model will bring.” Patrick Clayton, who has had Mac computers all his life and owns an iPhone and several iPads, returned his Apple Watch after three weeks. We gathered a dozen revised estimates this morning and got a new average: 2.53 million. “It’s hard to spin an estimated 2.2M Watch shipments in the June quarter positively,” writes Katy Huberty, using her own set of numbers, “given it missed our 3M estimate.” Cook told analysts yesterday that the Watch in its first 9 weeks outperformed both the original iPhone and the first iPad. It nagged the physically active New Yorker to stand up during a six-hour flight. “Apple is famous for telling us what we need before we need them,” Clayton said. “I thought this would be the case with the watch.

Apple is selling Watches into a installed base of hundreds of millions of iPhone users. (See the Mike Wehner’s A moment in Apple Watch history in the DailyDot for good perspective on this.) “Apple’s Other revenue category grew $874m y/y, and Tim Cook mentioned that more than 100% of the absolute growth came from the Watch. However, Cook said: “It would not be an inaccurate thing to look at the sequential revenue, the year-over-year change and assume that was the total watch revenue.” That suggested Apple Watch accounted for most of the growth and is already a billion-dollar business. We believe this implies Watch units of around 2.5 million with $500 ASPs and Other revenue ex-Watch down in the mid-30% range.” “Based on reported data in the other products category and Tim Cook’s commentary that Apple Watch unit sell-through was “higher than comparable launch periods” (meaning the first nine weeks) of the iPhone or iPad, we estimate Apple sold 2.80 million Apple Watches in FQ3. Apple comfortably beat Wall Street’s expectations: its earnings were four cents better than predicted, which still wasn’t enough to stave off investor disappointment.

We arrive at this estimate by adjusting the iPad launch of 3.27 million units for 14 extra days of potential sales (iPad debuted on April 3 versus the April 17 debut of Apple Watch). Wristly, a research company created to study the watch, found that early buyers are overwhelmingly satisfied, more so than with the original iPad and iPhone. This unit estimate implies an ASP of ~$450, which is well below our estimate of $775 and suggests a dramatically higher mix of Sport units and precious few sales of Edition units.”

After all, early adopters of new technologies tend to understand that what they’re getting isn’t perfect. “I’d recommend it to people with an open mind,” said Dennis Falkenstein of Danville, California. Apple’s results came as Microsoft reported a $3.2bn quarterly net loss, attributable largely to charges related to its Nokia phone business and job cuts, and to weak demand for its Windows operating system. David Lubarsky, a Fairfield, Connecticut, photographer, loves that he can get “basic information, quick” and avoid staring at Facebook on the phone all day. The watch version of one transit app offers bus schedules for your saved locations — even if they are far away — rather than the stops closest to you at the moment, as the phone app does. Apps will get better when Apple updates the watch’s software this fall to permit more “native” apps — those that aren’t just extensions of phone apps.

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